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Ask the Expert: What is the impact of the proposed property management reforms?

by: Geoff Hall
  • 26/05/2015
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Ask the Expert: What is the impact of the proposed property management reforms?
Our Ask the Experts column is your chance to put industry figures on the spot. In this edition Geoff Hall, managing director at Berkeley Alexander, answers your question.

Q: What is the potential impact on my business of the proposed Competition & Markets Authority (CMA) residential property management reforms?

The CMA has published various recommendations to the FCA following its market study into the residential property management services sector and the protection of leaseholder interests. It is important to point out here that these are just proposals at this stage, and that they apply to the managing agents themselves rather than to you as an adviser.

Nevertheless, these changes could have a significant direct impact on your business. In terms of the provision of buildings insurance, there are two key points to note. Firstly, the proposals suggest that property managers should, for each property they manage, fully disclose details of any commissions they earn on such insurances.

Secondly, it is suggested that property management companies should fully disclose to leaseholders all corporate links associated with the property, including those in relation to the procurement and administration of insurance.

Why is this under review?

Well, the study uncovered instances where leaseholder insurance premiums were being severely distorted by high commissions, or some might say ‘back handers’, earned by property managers for referring to certain insurance providers. Further, these commission costs were being passed along the chain to the leaseholder without any explanation or breakdown.

The CMA believes that this practice of commission incentives is not treating customers fairly, as property managers are not necessarily looking for the best deal for their leaseholders.

What the proposals seek to do is to level the playing field. If the property manager has to disclose commission, then it is hoped that they will be more focussed on looking for the best and most appropriate cover for leaseholders, rather than the one that pays them the highest commission. As the property managers then seek more comprehensive advice on the issue, a new market opportunity will open up for advisers.

Of course, buying cheaply is not the same as buying wisely, but you have the experience and knowledge needed to make an informed choice which offers value to all parties. This is, after all, what the CMA review wants to achieve – more transparency, better protection, and assured value for leaseholders.

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