Trust in agents crucial to long-term housing management

The government has ambitious plans to construct 370,000 new homes each year, which will need developers to build at volume and pace.

To hit these targets, it is likely that high density multi-family housing will feature heavily. However, ensuring such properties are effective in the long term is also vital.

Developers and managing agents need to collaborate so the latter are properly prepared to take on new leasehold homes – but this is becoming ever more complex.

Those parties that have signed up to the Home Builders Federation scheme agree to issue a survey and the results are then available for buyers to review.

The annual survey is designed to provide those buying new-build homes with information about the developers to inform their decision. 

The scheme aims to encourage excellent service and quality through a rating system, with stars awarded according to how likely customers are to recommend the developer to friends.

Recommendations are important in today's consumer-led market, and the relationship between freeholders, housebuilders and managing agents is brought into sharp focus.

Successful building schemes require each party to work in partnership to create transparency, fulfil expectations and ensure long-term asset value.

However, ground rent for new leases granted after 30 June 2022 under the Leasehold Reform (Ground Rent) Act 2022 has been abolished. 

Moreover, ground rent for existing leases wasn't included in the Leasehold and Freehold Reform Act 2024. 

There is currently a judicial review of the proposals and the new bill on leasehold and commonhold reform is expected in the spring.

Therefore, the role of landlord has become ever more complex and onerous, given the increased responsibilities placed on them by the Building Safety Act 2022 and fire safety reforms in the wake of the Grenfell Tower fire.

As a result, when schemes are near completion, developers will either sell the freehold on or pass responsibility over to the leaseholder in the form of a resident management company (RMC).

RMCs must choose a managing agent. This causes issues for the existing agent if the development has not been set up for long-term success, e.g. many developers will make managing agents remove longer term running costs that they know should be included in the service charge to keep the budget artificially low.

Ongoing rises in service charges, which are often sharp, are one such issue new agents face, especially when leaseholders are unaware of the dynamics that influence how budgets were put together originally.

Yet properties have become more complex to meet new building and fire safety requirements and improve sustainability, meaning that maintenance and associated compliance checks have pushed up running costs considerably. 

At the same time, developers will want to set service charges at a level that does not deter buyers.

Developers' marketing teams want to compare their schemes with others nearby; but with so many variables affecting the way service charges are calculated, it is impossible to compare one property to another.

Developers are further affected by void costs on parts of the development they have not yet sold.

As a result, developers are often pressured by their finance team or managing director to set service charges artificially low so as not to reflect the true cost of upkeep, or to hold off providing services that residents were promised but that impact their voids, e.g. developers don't put in place promised site security until much later in a scheme as the cost would impact the service charge and hence any void payment on unsold units.

Leaseholders understandably get annoyed as service charges rise to meet the true cost of upkeep; as a result of this resentment builds, more often than not towards the agent appointed to manage the scheme.

Such agents are then left to juggle the complex relationship between the parties, and homeowners will usually channel any frustration towards them, often deciding to engage new management.

If so, the intrinsic understanding of a scheme, how it was built and the way in which it has been maintained will likely be lost, and a professional managing agent will not sacrifice proper upkeep or compliance over cost.

For example, many agents won't carry out essential proactive maintenance given the age of a scheme and often this doesn't directly impact short-term operations. 

By contrast, when a professional firm takes over, they will ensure proactive maintenance is in place, which will cost more than hoping reactive maintenance will suffice.

While RICS members are regulated, many managing agents are not and there is no defined methodology for how to run a building. Where less-qualified or less-knowledgeable agents are appointed, therefore, it could lead to increased safety risks and poor practice.

These problems will be exacerbated once requirements about how the golden thread of building safety information is to be maintained are known.

The impact of this lack of regulation on leaseholders can be seen with cladding remediation projects. Essential information on materials used and maintenance regimes have not been kept or passed on from one managing agent to the next, which has no doubt led to delays and had an impact on residents' safety.

For reference, the RICS Service Charge Residential Management Code outlines good practice on handing over documents and information.

Moreover, RICS members are required to uphold its standards and a uniform method of running buildings would help agents understand to what standard they should maintain buildings to ensure that major incidents don't occur.

The benefits of building long-lasting trust between parties is clear. Developers must build the scheme properly in the first place and ensure that defects are dealt with efficiently, so any problems and blame are not passed unfairly to the managing agent.

They must also give agents the relevant information to understand how the scheme has been built and draw on their expertise to help set realistic service charges.

An open and honest dialogue with customers can reduce negative perceptions and create an environment where all stakeholders come together for the benefit of the wider community.

Working alongside residents, agents can build trust, establish transparency about the way they manage their customers' money and demonstrate the value they bring in the longer term.

Holding regular meetings with residents is therefore vital to gain their feedback and enable meaningful conversation.

Managing agents know only too well that the most effective resident meetings are those with a low turnout – which might seem strange, but if things are going well agents will seldom hear from residents.

It is when residents do not feel that their needs are being met that they will make their voices heard.

By fostering collaboration and dialogue, stakeholders can address challenges such as rising service charges and complex compliance demands, while maintaining safety and sustainability standards.

Success lies in prioritising the needs of residents and ensuring that developments not only meet short-term requirements but thrive as safe, well-maintained communities for years to come.

That said, resident communities are just one part of a building's long-term value. All too often the managing agents of buildings are changed in the false hope that it will reduce service charges – but at what cost?

While building a community is vital to running residential community schemes effectively, it is no substitute for the professionalism of managing agents and the resulting creation of long-term value.