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On the record


NO FORMAL REGULATION FOR LEASEHOLD SECTOR, SAYS CMA


In December, the Competition and Markets Authority (CMA) published the findings of its 12-month investigation into the market for residential property management services and has made a number of recommendations that aim to improve the way the sector operates. It has stopped short of recommending that property managers should be subject to more formal regulation by government, arguing that for many leaseholders the market works reasonably well. Satisfaction levels are particularly high where leaseholders have exercised their Right to Manage, says the report.


The CMA consulted extensively with consumer groups, leaseholders, the industry and government and found that overall, while the market works well for many, some leaseholders have experienced significant problems. 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 also discovered concerns about prospective purchasers' understanding of


Commenting on the CMA's findings, Martin Perry, chairman of ARMA said: “In large part the review is very positive – and of course I welcome the CMA's endorsement of ARMA-Q. However we are still in favour of regulation, although the CMA seems to have put the kibosh on that for at least the duration of the next parliament.


“Legislation is clearly needed to bring non- ARMA agents into the fold and without that, there is only so much that we can do to ensure best practice in the sector.”


One issue that came out very clearly in the report was that homebuyers are often not well informed about their obligations and responsibilities as leaseholders. Martin Perry believes the legal professional must take up the mantle and improve the level of information provided for buyers at


Issue 20


leasehold as a form of tenure and their obligations and service charge liabilities for leasehold flats. In response, 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; and


leaseholders' access to appropriate forms of redress.


Leaseholders need to be better informed about the responsibilities and performance of property managers, while greater transparency will increase pressure on property managers and landlords to take account of leaseholder interests.


The CMA is also calling for 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.


Ian Fletcher from the British Property Federation (BPF) welcomed the CMA's positive response to ARMA-Q. “The CMA has identified the positive steps already being taken by the sector to self-regulate and we are confident that ARMA-Q will codify the high standards the industry should be adhering to,” he said. However, he believes that despite its positive benefits ARMA-Q will only help to widen the


pre-purchase stage. Awareness of other aspects of the leasehold sector is also lacking in many cases, such as the existence of redress schemes and other pieces of legislation that apply to leasehold properties. “There is clearly a reason for an organisation like LEASE [the government- funded leasehold advisory service] to exist: it has to be the obvious choice for extending the information that is available to the public,” added Martin.


Despite a generally positive response to the report, “the elephant in the room” for Martin Perry is the fact that investor landlords are not taken into account by the CMA. “Unless we have buy-in from the people who are placing a large proportion of contracts with managing agents, we won't get anywhere. Consideration now needs to be given to getting them on board,” he said.


gap between those who pursue good standards and those who don't. “We would have liked to have seen some statutory underpinning of the industry's efforts to help level the playing field,” he said.


FPRA chairman Bob Smytherman also responded to the CMA's recommendations, saying: "We welcome the work done by the CMA into the leasehold sector and will study the report in detail, but from what I can see the CMA have ignored many of the demands from across the leasehold sector. The FPRA will continue to argue for greater transparency and legislative changes as we approach the general election in 2015 and beyond.”


The CMA will now work with leasehold organisations and government to implement its recommendations. Should these not prove to be effective, the market may come in for more scrutiny.


Bob Smytherman: arguing for greater transparency


Martin Perry: investor landlords have not been addressed


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