Qualifications/acceptable membership criteria for a prospective Management Agent

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    #16
    Originally posted by flyingfreehold View Post
    On smaller estates i make up a package of all of the invoices (quite often only one or two a year) and send it out by pdf. The overheads of an audit and set of accounts is absurd if the only item that year was the insurance premium. In many smaller estates where it is typically only an insurance premium to recover we dont even bother with a Managing Agents fee.
    Well done, I think that supporting documents should be made available for inspection by all leaseholders, including those in larger blocks. It would help leaseholders to improve their understanding of the charges and it would improve the relationship between leaseholders and freeholders. Unfortunately the majority of freeholders refuse to be open and transparent, refuse to disclose connections with contractors and make various excuses why they are unable to allow inspection of documents.

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      #17
      You are right. I gave some Management out of a large estate a long way from base to a very large and well known firm of mamaging agents. The property manager was an associate RICS but I was appalled by the terms and conditions which included allowing the firm to keep commissions from contractors and using group companies for services like water tank inspections, revaluations for insurance. I sent back the contract with lots of crossings out in red ink and they agreed the amended contract. One of the things they wanted was for the freeholder to insure the managing agent as a term of instruction and give an indemnity to the MA. I asked our insurers and it would have been a serious chunk of addiitonal premium. Interesting that there is room for deny some terms of the contract. My conclusion is that Chartered firms terms are a bit of a try on.

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        #18
        It is not restricted to RICS members, the standard ARMA management agreement contains an indemnity clause and the right for the agent to retain commissions received as long as they are disclosed to their client. There may be other benefits which may not be described as commission and which therefore would not need to be disclosed.

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          #19
          Originally posted by eagle2 View Post

          An independent review of the accounts must be better than none at all...
          Why?

          All that 'independent' review usually means is that an accountancy firm has been paid a (usually unreasonable) amount to check that the amounts stated in the accounts provided by a managing agent match the amounts shown on the invoices supplied to them by the managing agent.

          How many invoices do there need to be for this to become too complex a task for leaseholders to manage themselves (after being provided with copies of the invoices by the managing agent)?

          For the flat where I live, there have usually been 20-30 invoices each year, with the total for each leaseholder being £800 - £1000 on average. Usually, this total includes 12 identical monthly invoices for 'cleaning', 4 identical invoices for quarterly managing agent fees, at least 4 for electricity, 1 for insurance, 1 for the accountancy fees (£80 per leaseholder), and at best just a handful for other maintenance.
          Once I have copies of the invoices it, quite literally, takes me less than 10 minute to confirm that the amounts match the end of year statement AND check whether the costs are payable under the terms of the lease. It is definitely not 'better' for me to have to pay £80 just to have the first part of this checked by someone who couldn't care less whether the costs should be charged to the service charge accounts, or whether or not they are actually reasonable.

          The 'best practice' that says that accounts should be signed off by an independent accountant benefits no one except for the accountants who are being paid to sign off accounts.
          Any leaseholder who wants to be sure that they are being charged only what they are obligated to pay STILL needs to obtain the invoices and check them against the accounts, and the lease, themselves - and if they need to do that anyway, why not cut the expense of an accountant and just require freeholders to automatically make copies of all invoices available, even without request?

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            #20
            An independent review is better than nothing because otherwise the freeholder could put any figures at all within the accounts, The review will highlight errors which will be corrected before they are sent to leaseholders in order to avoid an adverse report being issued by the accountant. I agree that there is a lot of red tape, much time will be spent completing a check list to protect the accountant. I also agree that leaseholders should inspect the documents but most do not and freeholders do not normally encourage leaseholders, they often put obstacles in their way,

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              #21
              What people find confusing is that the accountants report and accounts typically show payments due and owing from leaseholders as a credit in the accounts whereas quite often the payments are not yet received, sometimes for months or even years later. Hence leaseholders cant understand where the money has gone because the reality is that it is awaited. So on the basis of the accounts there seems to be ample funding but in real life there is nothing in the kitty. In such circumstances an enlightened freeholder who is able to do so will agree to a loan to the service charge fund. Covid has made debt collection more difficult than usual. Leaseholders who let their flats sometimes cannot be found. Their lenders are not particularly helpful.

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                #22
                Originally posted by eagle2 View Post
                An independent review is better than nothing because otherwise the freeholder could put any figures at all within the accounts, The review will highlight errors which will be corrected before they are sent to leaseholders in order to avoid an adverse report being issued by the accountant.
                The freeholder can put any figures at all in the accounts - as long as they can provide an invoice that apparently accounts for the amount (easily produced if they want to defraud leaseholders that way).

                Typically the only thing that accountants check is whether or not the amounts in the an account statement and the invoices provided match. Other than that, in my experience, they prevent no errors whatsoever and do nothing to help prevent leaseholders being charged amounts that are unreasonable or shouldn't be included in the accounts at all.

                All that paying accountants does is give some leaseholders the false impression that they don't need to check statements of account/invoices themselves (which, unfortunately, makes it more likely that they are actually being overcharged).


                In response to flying freehold, if the way that annual accounts are presented makes them difficult for leaseholders to understand, the way to solve that problem is to legally oblige freeholders/managing agents to present the accounts in a format that should be easy to understand.

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                  #23
                  Originally posted by flyingfreehold View Post
                  What people find confusing is that the accountants report and accounts typically show payments due and owing from leaseholders as a credit in the accounts whereas quite often the payments are not yet received, sometimes for months or even years later. Hence leaseholders cant understand where the money has gone because the reality is that it is awaited. So on the basis of the accounts there seems to be ample funding but in real life there is nothing in the kitty. In such circumstances an enlightened freeholder who is able to do so will agree to a loan to the service charge fund. Covid has made debt collection more difficult than usual. Leaseholders who let their flats sometimes cannot be found. Their lenders are not particularly helpful.
                  I wonder how many leaseholders actually read the accounts but I agree that they could be simplified or explained better.

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                    #24
                    Originally posted by Macromia View Post
                    The freeholder can put any figures at all in the accounts - as long as they can provide an invoice that apparently accounts for the amount (easily produced if they want to defraud leaseholders that way).

                    Typically the only thing that accountants check is whether or not the amounts in the an account statement and the invoices provided match. Other than that, in my experience, they prevent no errors whatsoever and do nothing to help prevent leaseholders being charged amounts that are unreasonable or shouldn't be included in the accounts at all.

                    All that paying accountants does is give some leaseholders the false impression that they don't need to check statements of account/invoices themselves (which, unfortunately, makes it more likely that they are actually being overcharged).

                    No, I don't think that you can make those statements, the accountant does not disclose the errors which he/she has found and which have been corrected. That means that the leaseholders are unaware of those items and the errors would remain if there were no review. An outright fraudulent invoice for any significant amount should be picked up by the accountant, whereas it would not be corrected if there were no review at all. The accountant is not qualified to consider the reasonableness of the charges and that is why there is a Tribunal to consider them.

                    There is a problem that leaseholders do not actually understand what work the accountant performs. There is also a problem that the report is not actually issued to the leaseholders. So there could be improvements and freeholders could be required to make available all supporting documents.

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                      #25
                      Originally posted by eagle2 View Post

                      No, I don't think that you can make those statements...
                      Why not?
                      Remember that I'm talking about small blocks, with simple accounts that consist of only a handful of invoices, so few that the accounts should quite literally be able to be pulled together pretty much from scratch in a couple of hours (even if the information provided by the managing agents is jumbled), and which can very quickly be checked if the accounts are provided in a half decent state (an accountants opinion for the accounts for the block where I live, not my own).

                      How many mistakes do you think managing agents can make with such simple accounts?

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                        #26
                        Originally posted by Macromia View Post

                        Why not?

                        How many mistakes do you think managing agents can make with such simple accounts?
                        In many ways, I agree with you, I do think that leaseholders should inspect the documents and check their charges. It is unreasonable to criticise the accountant when leaseholders are unaware of the instructions which have been issued to the accountant and unaware of the actual work carried out by the accountant, Managing agents make many mistakes, the most common is allocating income and expenditure to the wrong building.

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