This page contains a Flash digital edition of a book.
Flat-Living.co.uk ARMA

ARMA LESSEE ADVISORY NOTE: LAN 13

Management Fees

Note:- One of ARMA’s key roles is to provide its members with technical support. However, from time to time, technical or other issues arise where guidance for lessees as well as their property manager is deemed appropriate. Such guidance is contained in these Lessee Advisory Notes (LANs) which ARMA members can copy and distribute to their clients and lessees as appropriate.

SUMMARY

  fee levels for its members or give any advice on what are market levels for fees.

  a block of flats. The fee will depend upon the size and type of property and the precise range and quality of services required.

  when negotiating with and charging fees to landlords including resident management companies (RMCo) or right to manage companies (RTMCo).

  set out here what we believe is good practice for agents about management fees with their clients.

MANAGING AGENTS AND MANAGEMENT FEES

The management fees paid as one part of a leaseholder’s service charge are the lifeblood of firms of managing agents. Those fees pay for the offices, salaries, national insurance, pensions and training of staff; and the computers, telephones, post, stationery and other things that agents have to provide. Without management fees there would be no managing agents. The rest of the service charge is used to pay for the services, repairs and insurances required.

THE CODE OF PRACTICE RE MANAGEMENT FEES

ARMA members agree to abide by the RICS Service Charge Residential Management Code (2nd Edition, effective from 6 April 09) which states as follows:



“Managing agents and their clients should enter into written management contracts. The basis of fee charging and duties should be contained in the agreement.”



“Your charges should be appropriate to the task involved and be pre-agreed with the client whenever possible. Where there is a service charge, standard annual fees are usually quoted as a fixed fee rather than as a percentage of outgoings or income. This method is considered to be preferable so that tenants can budget for their annual expenditure. However, where the lease specifies a different form of charging, the method in the lease will be used by managing agents.”

• •

“The managing agent should give, consistent with the terms of the contract with the client, reasonable and adequate notice of any increases in charges.”

“ If the managing agents’ charges are agreed to be subject to indexation, the index to which they are linked should be agreed in advance in writing.”

The RICS code sets out the duties or services that would normally be covered by the standard annual fee of the agent, what is usually referred to as the management fee. It also suggests a list of other duties and services provided by agents that would normally be charged for outside of the standard annual fee. Such extra services and the fees to be charged or the basis for charging should also be made clear as part of the management agreement.

THE LISTS OF SERVICES/DUTIES OF AGENTS

ARMA has adopted a similar approach to the RICS code in its model management agreement for agents and their clients. The agreement requires the agent to agree two lists of services/duties with a client: one list will be done for the standard management fee and one will be charged additional fees if carried out. It also requires the agent to declare commissions. Further in practice the standard fee will normally be stated as an

annual fee for the whole development in total; not per unit. The per unit figure can be easily calculated and be used to make comparisons between agents.

The management agreement should also be clear on whether the agent has the right to deduct its fees on certain dates from client monies held or whether fees can only be deducted with the express approval of the client, and when and how fees will be reviewed.

FEES AS A PERCENTAGE OF COSTS

With regard to the use of percentages as a basis for fees, both ARMA and the RICS believe this is poor practice because they establish an immediate conflict of interest between the client and agent. However, there are leases which require the use of percentages and the landlord will have to charge in this way and so agents may have to follow.

FEES AND AN AVERAGE PER UNIT

By referring to fees as per unit of accommodation we are referring to an average basic fee per unit on the property. So if the fee were £6000 for 30 units the average would be £200. This does not of course mean that that is how this average fee will be charged to lessees. The apportionment of service charge costs including the fees will be determined by the lease.

MAJOR WORKS, LONG TERM AGREEMENTS AND FEES

It is normal practice that additional fees to the standard fee will be charged for the handling of major works and long term agreements, including the sending of the required consultation notices under section 20 of the Landlord and Tenant Act 1985.

COMMISSIONS

The RICS code states that “insurance commissions and all other sources of income to the managing agent arising out of the management should be declared to the client and to tenants.” The RICS code does not say when the declaration should be made

but ARMA is clear that this should also be part of the management agreement and be declared before the contract is entered into by the client and the agent. ARMA’s stance on commissions is that transparency and openness

are required by agents as follows: “If an agent receives commission directly or such commission is paid

to any other member of the same group of companies as a result of undertaking the management, then ARMA requires that it its declared to the client, whether an investor landlord or residents management company. If a lessee or residents association makes a written request then an agent should declare any commission receivable.”

33 Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52
Produced with Yudu - www.yudu.com