The Competition and Markets Authority (CMA) consulted extensively with consumer groups, leaseholders, the industry and government during the course of its
study. It found that overall, while the market works well for many leaseholders, some have experienced significant problems in a sector where total annual service charges are estimated at £2.5 to £3.5 billion.
The issues identified include leaseholder frustration at a lack of control over the appointment of property managers, high charges for services arranged by property managers or poor standards of service, leaseholders suffering unexpected costs and being charged for works they consider unnecessary, poor communication and transparency between property managers and leaseholders, and difficulties in getting redress. The CMA has also identified some concerns about prospective purchasers’ understanding of leasehold, and their obligations and service charge liabilities for leasehold flats.
In light of its findings and on-going developments in the market, the CMA has made a number of detailed recommendations aimed at improving:
- prospective purchasers’ awareness of leaseholders’ obligations
- disclosure, transparency and communication between property managers and leaseholders
- leaseholders’ access to appropriate forms of redress.
These recommendations will make leaseholders better informed about the responsibilities and performance of property managers, while greater transparency will increase pressures on property managers and landlords to take account of leaseholder interests. They will also provide improved mechanisms for dispute resolution, should issues arise that require action.
The CMA is also recommending changes to legislation affecting rights of consultation relating to major works, as well as supplementing the existing Right to Manage legislation to enable leaseholders, where there is a majority in favour, to require the landlord to re-tender the property management of their block.
The CMA is not recommending that property managers should be subject to more formal regulation by government. For many the market works reasonably well, and satisfaction levels are particularly high where leaseholders have exercised their Right to Manage. Existing legislation provides significant protections for many leaseholders, and the sector has engaged constructively with the CMA during the course of its study, recognising that there are improvements to be made and showing a willingness to address the issues that have been identified.
Rachel Merelie, the Senior Director at the CMA who led the study, said:
Many property managers provide a good service to leaseholders, but protection against the worst failures by property managers is vital because when problems do occur they have a major impact on leaseholders.
We are pleased that within the sector there is a consensus that change is needed and a genuine willingness to be part of that change. This is evidenced by the new and revised self-regulatory codes of practice and the enthusiasm of key players, including property managers, to improve how this market functions.
The CMA intends to work with the sector and government to implement its recommendations. However, should these not prove to be effective in addressing the issues identified, the CMA may choose to re-examine the market in due course.
Notes for editors
The CMA study considered the provision of residential property management services to leaseholders in England and Wales. The CMA study did not address the leasehold system itself or issues that arise from the terms of leases, or freeholder-leaseholder relations.
The CMA’s update statement was published on 1 August, setting out the CMA’s early findings and views on possible remedial action.
In February 2009, the Office of Fair Trading (OFT) published a study into the Scottish property management market, which found that the market was not working well and made a number of recommendations. Further to the publication of its recommendations, Scottish Government enacted The Property Factors (Scotland) Act 2011 (Act), which came into force on 1 October 2012. This Act aims to protect homeowners by providing minimum standards for property factors. All provisions of the Act apply to all residential property and land managers whether they are private sector businesses, local authorities or housing associations and provides for a compulsory register of property factors operating in Scotland, a code of conduct and a new route for redress. The Northern Ireland Law Commission carried out a review of the Law Relating to Apartments and the issues which affect apartments themselves in May 2013.
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the OFT, as amended by the Enterprise and Regulatory Reform Act 2013. For more information see the CMA’s homepage.
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Enquiries should be directed to Simon Belgard on 020 3738 6472 or Rory Taylor on 020 3738 6798.