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What's so hard?
As an accountant, I would say nothing really.
Typically a small block of say 10 apartments has some common areas that need looking after – cleaning, painting, light bulbs changing, door closers fixed, maybe a lift to maintain.
Often in this situation a Managing Agent is appointed. And their brief is to deal with all this stuff so the residents can relax knowing everything is being done right, and the myriad of laws covering these properties are followed. Sometimes the original builder will set this up through his mate, and you just inherit whatever he’s arranged.
In return a modest (!) amount is paid to the managing agents for getting all his/her mates to do these tasks, and bill you for their services (at extortionate rates).
Complications
Often residents find they actually own their freehold. This may be through various legal entities, the commonest is a limited company with each leaseholder holding one share.
If you own the freehold then you have to worry about the overall fabric of the building all the apartments are part of etc.
Often Agents leave the owning company dormant, and process all the payments through their own books, and just bill them out to you. This they say saves xyz, but in fact doesn’t as they still have to do property schedules for you. We also consider it makes it easier for Agents to fudge stuff through that maybe should be reviewed first. Running everything through the company bank makes for a clearer financial picture for leaseholders to monitor/review. Often Agents get little contact with the flat owners because some are absent landlords themselves etc.
Many smaller blocks find the Agents base fees quite high for what’s being done. They baulk at paying a fiver for something you yourself might pay a pound for.
Residents often mistakenly think their monthly property maintenance fee is just that, whereas it is invariably just an on-account payment that goes into a pot called a Sinking Fund, to be disbursed as things come up.
Mostly things amble along untroubled unless the SF runs low on dough, maybe all the cladding on your 12 year old block of flats needs replacing unexpectedly, owners often feel peeved at handing over £40k instead of the £100/mth normal charge. The whole topic of how you share out costs can be contentious, especially if something big comes up. And if you are in the middle of buying/selling such a flat when the cladding is perhaps merely being checked, not even replaced, guess how easy the transaction for you will be?
Taxes
There’s a small but important, wrinkle that HMRC kindly allow for Management Companies – the Sinking Fund builds up each year as you collect the dues tax-free. The only income taxes the company is liable for is Corporation Tax on the interest received on accumulated funds. HMRC note here. This is useful as otherwise the company would suffer tax as it builds up its sinking Fund, and only get a part refund as expenses were paid out and the balance accumulated falls.
The Solution to high Agents fees?
Become self-managed – there’s legislation to help with this. The best way to achieve this is to get a friendly lawyer/accountant on your side to guide you through it. Activate your own management company to be the umbrella for expenses, and co-operate with your immediate neighbours to run things yourselves.
There can be complications to getting the bank account set up, but once set up, it’s pretty simple to receive a bit of money, and pay the odd bill. Many bills just run without attention as they are direct debits – electricity, water. Others can require occasional attention – resisting the insurance company increasing your annual premiums. Other costs can cause headaches like the guy shambling around with a fag who picks up the odd weed and charges £loads for making the outside look like a wilderness area.
With shared goodwill most stuff can be done simply though. And think about all the experience you will acquire running a small company? What’s not to like!
And remember, even with self-management, you can engage various people to look after lumps of your property to eliminate any bits you find hard in practice. For instance you would use a specialist firm to look after the lift maintenance, and importantly be responsible for breakdown calls direct. You could even engage a support call company to provide 24 hour telephone support for emergencies operating according to your agreed parameters.
If you want a no obligation chat about this note please call/email.
PS. This briefing is for properties in England subject to English Law.
Contact us with any queries about this post
on abell@chartered.org or 0207 148 4785