Residential property management services

Residential property management services

A market study

2 December 2014

? Crown copyright 2014

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Contents

Page

1. Executive summary............................................................................................... 5 Regulatory framework ........................................................................................... 5 Size of the market ................................................................................................. 6 Trade and professional associations ............................................................... 6 Scope of the study ................................................................................................ 7 Methodology ......................................................................................................... 7 Findings ................................................................................................................ 8 Outcomes for leaseholders.............................................................................. 9 Leaseholder understanding of obligations ..................................................... 10 Communication and transparency ................................................................. 11 Right to Manage ............................................................................................ 11 Competition between property management companies............................... 12 Buildings insurance ....................................................................................... 12 Section 20 consultation ................................................................................. 13 Vulnerable groups and retirement issues ...................................................... 13 Local authorities and housing associations ................................................... 13 Codes ............................................................................................................ 15 Redress ......................................................................................................... 15 Conclusions on how the market is working ......................................................... 16 Recommendations .............................................................................................. 18 A. Pre-purchase remedies ............................................................................. 20 B. Remedies to improve transparency and communication, to be addressed via self-regulatory industry codes of practice ? recommendations to ARMA, RICS, AHRM, etc ............................................ 20 C. Remedies requiring regulation/legislative change ? recommendations to DCLG ........................................................................................................... 22 D. Local authorities and housing associations remedies ............................... 22 E. Redress remedies ..................................................................................... 23

2. Introduction ......................................................................................................... 25 The CMA's mission and powers.......................................................................... 25 Background to the CMA's market study .............................................................. 26 Scope of the market study ............................................................................. 26 Information gathering ? method and issues ........................................................ 27 Structure of the report ......................................................................................... 29 Acknowledgements............................................................................................. 30

3. Overview of the sector and issues potentially giving rise to poor outcomes for leaseholders ...................................................................................................... 31 Leasehold ownership and residential property management services................ 31 Property law and safeguards for leaseholders .................................................... 35 Service charges and sinking funds ................................................................ 35 Provision of service charge information to leaseholders................................ 36 Buildings insurance ....................................................................................... 36 Scrutiny of property managers' performance................................................. 37 Recognised tenants' associations ................................................................. 37 Consultation on major works ......................................................................... 37 Collective enfranchisement ........................................................................... 38 The right to manage ...................................................................................... 38 Consumer law................................................................................................ 39

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Ombudsman schemes................................................................................... 40 Other aspects to safeguard leaseholders ...................................................... 40 The size of the leasehold sector ......................................................................... 41 Size and structure of the residential property management services sector ....... 44 Structure of the property management sector ............................................... 45 Demand- and supply-side considerations in this market..................................... 46 Possible issues giving rise to poor outcomes to leaseholders ............................ 47 Separation of control ..................................................................................... 47 Misalignment of incentives ............................................................................ 48 Coordination and free-rider problems ............................................................ 51 Information asymmetries ............................................................................... 52 Weaknesses in the protections to leaseholders............................................. 52 Conclusions on the expected performance of the sector ............................... 53 4. Findings .............................................................................................................. 54 Introduction ......................................................................................................... 54 Evidence on outcomes for leaseholders in the RPMS market ............................ 54 Approach and sources of evidence ............................................................... 54 Service levels ................................................................................................ 56 Charges and value ........................................................................................ 59 Charges for administration and supplementary services ............................... 62 Control and appropriateness of costs ............................................................ 63 Communication and transparency ................................................................. 65 Consultation on major works ......................................................................... 68 Understanding of obligations ......................................................................... 70 Complaints and redress................................................................................. 71 Findings on outcomes for leaseholders ......................................................... 72 Freeholder-landlords and alignment of interests ................................................. 73 Investor-freeholders....................................................................................... 73 Property developers ...................................................................................... 75 Retirement housing freeholders..................................................................... 76 Findings on alignment of interests ................................................................. 77 Right to Manage.................................................................................................. 78 Leaseholders' experience with RTM.............................................................. 78 Difficulties in acquiring RTM .......................................................................... 79 The constraint of RTM on freeholder behaviour ............................................ 80 Findings on RTM ........................................................................................... 81 Coordination issues ............................................................................................ 82 Vulnerable leaseholders ..................................................................................... 82 Competition between property management companies .................................... 83 Competition to manage new developments................................................... 84 Switching and competition to manage existing developments....................... 86 Prices ............................................................................................................ 89 Findings on competition................................................................................. 89 5. Insurance, retirement properties and local authority and housing association properties ........................................................................................................... 91 Buildings insurance............................................................................................. 91 Evidence........................................................................................................ 92 Limits on commissions and fees for property managers................................ 95 Transparency................................................................................................. 95 Conclusions ................................................................................................... 97 Retirement housing ............................................................................................. 98

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Retirement housing stock .............................................................................. 99 Retirement housing freeholders..................................................................... 99 Self-regulation ............................................................................................. 100 Findings ....................................................................................................... 101 Conclusions ................................................................................................. 107 Local authorities and housing associations....................................................... 108 Social housing stock .................................................................................... 110 Findings ....................................................................................................... 111 Conclusions ................................................................................................. 123 6. Codes and redress............................................................................................ 125 Overview ........................................................................................................... 125 Introduction.................................................................................................. 125 Findings ....................................................................................................... 125 Codes ............................................................................................................... 126 Ombudsman schemes ...................................................................................... 130 Tribunals ........................................................................................................... 132 Conclusions ...................................................................................................... 135 7. Recommendations ............................................................................................ 138 Conclusions on how the market is working ....................................................... 138 Detriment ..................................................................................................... 140 Remedial actions ......................................................................................... 141 Recommendations ............................................................................................ 145 Pre-purchase remedies..................................................................................... 145 Guidance to prospective purchasers pre-purchase ? recommendations to The Property Ombudsman/LEASE......................................................... 145 Conveyancing stage ? standard questions ? recommendations to The Law Society/LEASE.................................................................................... 145 Remedies to improve transparency and communication, to be addressed via self-regulatory industry codes of practice ? recommendations to ARMA, RICS, ARHM, etc ............................................................................................. 147 Provision of information on property management responsibilities, plans, and past and future work ............................................................................ 148 Disclosure of fees, charges and commissions............................................. 150 Full disclosure of corporate links ................................................................. 152 Recognition/encouragement of better communication between property managers and leaseholders ....................................................................... 154 Redress remedies............................................................................................. 155 Cheaper and quicker alternatives to taking claims to the First-tier Tribunal 155 Remedies requiring regulation/legislative change............................................. 157 New legislation to give leaseholders rights to trigger re-tendering and rights to veto the landlord's choice of property manager ............................ 157 Review of section 20 rules (consultation with leaseholders in relation to major works) ............................................................................................... 157 Local authorities and housing associations remedies ....................................... 160 Share best practice...................................................................................... 160 Leaseholder costs to be identified by block ................................................. 161 Effectiveness of our remedy recommendations ................................................ 162 How the measures address the issues of concern and resulting customer detriment .................................................................................................... 162 Practicality of effective implementation, monitoring and enforcement ......... 165 The timescale for the remedy measures ..................................................... 166

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