The Office of Fair Trading (OFT) has launched a market study into the provision of residential property management services to leaseholders in England and Wales.
Having sought views on the scope of the study, the OFT has decided to widen its investigation to include residential property management services for properties where local authorities and housing associations are the freeholders, as well as those with private sector freeholders. These have been brought within scope because of similarities in the concerns expressed by respondents in relation to the provision of property management services to former local authority properties.
Estimates vary but there may be as many as five million leaseholders in England and Wales.
The OFT will look at whether the residential property management services market is working well for leaseholders and freeholders, including:
- Whether managing agents and freeholders have the same interests as leaseholders in, for example, keeping down costs for maintenance work or building insurance
- Whether leaseholders have sufficient influence on decisions taken by freeholders or others on the appointment of managing agents and the supply of residential property management services
- Whether there are barriers to switching and whether competition between property managers more generally is working well
- Whether managing agents’ and freeholders’ choice of contractors and services may be influenced by links with associated companies and the availability of financial commissions
- Whether it works well in practice when leaseholders exercise their right to manage their own properties.
Leaseholders typically pay a service charge to cover costs for the maintenance and management of their shared building. Regular instalments into a ‘sinking fund’ may also cover other significant expenses, such as roof maintenance. A property management company is often used to provide maintenance, cleaning or building work. Property management companies may provide the services themselves or through contractors. In some cases, such as where right-to-manage powers have been exercised, responsibility rests with the leaseholders and they may appoint a property management company to organise these services.
In April 2014, the Competition and Markets Authority (CMA) takes on the existing competition and some of the consumer protection functions of the OFT. The CMA will publish the final report before the end of the year.
Rachel Merelie, senior responsible officer for the study, said: “Service charges for the maintenance of a building can be substantial and we want to make sure that leaseholders are getting a fair deal.
“We are concerned that management agents and freeholders may not be incentivised to keep maintenance costs down and that leaseholders may not receive value for money.
“We will look at whether there is sufficient competition in the market generally as well as taking a close look at specific areas which have been brought to our attention, including services provided to retirement properties.”