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Ricky_FTB

"management Company For Upkeep Of Development"

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I have seen a few private developments around with this detailed in the description like with this one -

http://www.propertynews.com/developmentBrochure.php?p=1280

"A management company will be formed between the 5 residents to organise the upkeep and well being of the development (a moderate service charge will apply)"

Does anyone know anything about these management companies? How much they cost, what if you want to opt out etc etc? Also, does this mean that you are not the freeholder of the property?

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Thanks again Doccy. Very interesting. Seems like a bit of a disaster tbh.

That thread seems to be quite specific to apartments. I wonder if the same is the case for individual houses in a private development? Its almost as if no one owns the ground that the house is built on.

Someone mentions £60/month - Sounds very expensive to me! As if a mortgage isnt expensive enough!

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The link provided by the OP is rather strange, it sounds like there is already a management company, or you are just paying ground rent to the leasor. It maybe that they do not want to collect money seperately from each resident. Why you should pay them a 'service charge' for doing part of their work for them mistifes me. I would be suspicious and negotiate.

In most cases it is totally up to the resident what you do and how much you charge. The previous owners of our group of flats setup a management company owned and run by the residents. They did comment that it cost them quite a bit to do, but registering a ltd company is not costly. They did buy out the first level of ground rent (only to find there was another), so the management company is responsible for all shared areas of the house+garden but not perhaps the road. I suspect that is what cost most of the money, you need to check if the residents have already bought a share in the land ownership or if it still just leased and exactly what that applies to. We simply charge ourselves £60/month to build up capital to major repairs mainly, otherwise gardening/cleaning hall/building insurance elec doesn't cost that much.

You can contract it out to another company but unless it is a large group of properties I don't think I would recomend it, as they will be in it for profit and you have to pay their wages. If you do go the internal management route you need to document the decision and financial processes. We have had problems with our loveable neightbour that treats the fund as their own and is not getting approval for all expenses and often when they do, not providing any details/quotes etc. You need to treat it like a company and assume anyone can be corrupted and require documentation and approval from all (at least verbally, but again we have had 'miscommunications' on that too).

Also if you register it as not for profit you don't have to do yearly accounts, although that can be a bad thing as it encourages a casual approach to other peoples money. Whoever is the company secretary must produce some sort of summary at least on a yearly basis for all to see. I would recommend giving a small wage to the company secretary to cover their costs to help keep things professional, however that can have Income tax issues if they are not already doing their own returns.

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Thanks for that Ride on and Doccy.

Ride on, i went looking for the houses in the OP earlier and the houses are all situauted on a private laneway, with street lights lining the lane. I suppose the management company is for paying the electricity bill for the lights, and maybe for resurfacing the laneway after a few years if necessary. I cant imagine what else it might be for. I suppose that makes sense in that the houses and the ground they are situated on are all owned by the respective owners, but the lane is a common area, and therefore any costs going towards the lane must be shared.

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In most recent developments there will be an element of openspace, parks etc. These will be transfered to the occoupiers. I.e if there are 100 houses then each household will have one of a hundred shares. The developer will set up a management company, for the residents and will step down as the last house ios sold. an agent is normally apointed and the residents can change the agent or do away with them altogether if for example a retired person wishes to do it. (which has happened on one occation for me). If we are only talking houses the fee should only be £150 pa. If you have unadopted, private roads then there will be a sinking fund (say another £100 pa) to the eventual repairs.

If you have an aparthent the building structure will have to be insured and any cates or liftas will have a maintaince contract. Could cost £1,000 pa. Cleaning etc of the common areas etc.

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As BVI says, increasingly housing developments are adopting the setting up of a Management Company as part of their setup, into which all owners become shareholders. It is far more involved with apartments where there is so much communal expenses, eg buildings insurance, communal cleaning, communal electricity (stairwells & underground car parks etc).

Notwithstanding this, I feel that owners purchasing a unit in a development should still consider some of the issues in the threads above and also below...:-

1: Enquire who the Managing Agent is, what is their relationship with the developer? I have heard of a situation where one small block of 4 unit where their Managing Agent is an employee of the developer. If issues arise within the block, ie structural or development the Managing Agent should be in a position to represent the shareholders against the developer without a conflict of interest. Essential that if parts of development sold, that developer is paying the mngt charges of the unsold units and that a 'friendly' Managing Agent isnt just spreading that cost amonst the shareholders who have completed. This is particularly important in the current climate, where there could be unsold units in developments, and developers are getting squeezed by both carrying the unsold units plus the Mngt Charge costs for them too..

2: Are finances of the Management Company ring-fenced in designated account for use of that development only. In my view essential to ensure 'cross-funding' cannot occur. Is a separate ringfenced 'sinking fund' being accrued to help fund long term refurbishments etc.. If in 'pooled a/c' the finances are at potentially at risk if Managing Agent goes bust...

3: Are the accounts independantly audited and not filed as 'dormant'.

4: What is relationship between the Managing Agent and contractors employed by it. I.E. are works put out to tender etc and value sought in shareholder interest, or are services provided by 'associated' company (owned by managing agent) with perhaps little regard for shareholder value. Jobs/services could be issued on basis of self interest, ie their associated company provides it thus earning them money rather service implemented in interest of shareholders.

5: Any insurance policy should be in name of development instead of 'umbrella' policy, thus not impacted by adverse claims history in other developments managed by Managing Agent.

6: Essential that all payments get approved by shareholders, eg take Directorships so have ultimate control of funds eg by countersiging payments form services upon invoice being approved. Unfortunatly shareholders in different developments have had funds paid out by Managing Agents when service not up to acceptable level.

It is essential that the Managing Agent becomes accountable to the owners/shareholders and are not allowed to take up the position of Directors of the Management Company when the transfer of the Management Company from Developer to owners occurs. This has resulted in some cases whereby the Managing Agent has a conflict of interest wherby it effectivly employs itself so has control of the development, and shareholders who have been unhappy with the service have found it difficult to effect change. Obviously need to ensure all snagging done etc and agreement that any open space areas etc for which Management Company will be assuming upkeep responsibility for which will be transferring from developer to management Company are up to the standard required/agreed to ensure the management Company isnt effectively 'finishing off' the palanted/landscaped areas which should have been the remit of the developer and as such paid by them (or as part of the purchase price paid for the developments units by the purchasing shareholders).

You can decide to manage the development yourselves, but would caution that problems can arise if disagrements re costs and logistical issues arise which could lead to an unpleasant living environment amongst shareholders who live in close quarters to each other- may be best to pay a sum and have a Managing Agent who will undertake the unpleasant business such as chasing up anyone who desnt pay or causing problems in communal/shared areas etc.

It is interesting that on many Estate Agents glossy brochures and adverts there is the line detailing in pretty small print about a Management Company being formed, but little explaination about it.. There are many potential issues to consider..

Accountability and transparency are the most important factors, increasingly conveyancing solicitors are looking at the financial/corporate management of Management Companies and if this isnt in place, it can affect the desireability and potentially value of your unit down the road

You might want to have a read at the following also, largely on Apt issues, but open-space developments get a mention also.....

http://www.theyworkforyou.com/ni/?id=2009-11-09.10.1

regards

All interesting stuff. But remember the management company belongs to the residents. It has nothing to do with the developer, apart from being setup by it. The developer will normally put in place a agent to run the management co. You, as shareholders can sack, or change the management agent if you want to.

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Excellent information from lagansider which only leaves us to ponder why anyone with knowledge of the above would consider buying in such a development.

I think we are all getting a bit excited here. With apartments yes you have to realise that someone has to be paid to maintain and perhaps replace the elavator, gates etc.

However on all new housing developments there is common open space. You will want this to be insured and maintained and this will have a cost. there is simply no way around this.

Quite frankly, it is the older developments which may have some element of open space but with no management in place that would worry me.

Edited by BelfastVI

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In my case, and others, we wern't aware of the issues when we bought into developments, but became aware of them over time, due to concern about how our developments were being run by the (then) Managing Agents, and unlike many other owners who appear to show little interest in the Management Company setup and ramifications, we have spent quite a bit of time researching the issues. It has been a steep learning curve...

What is really needed is legislation setup to govern Managing Agents to ensure their accountability and to protect the interests of owners of apartments and houses in developments where they are setup as part of a Management Company. At present anyone can set themselves up as a Managing Agent and effectively get themselves in a position where they could control the funds paid in good faith by the shareholders in a development, however there is no consumer protection at present in this area in Northern Ireland. The issues are now being raised wth MLA's who are showing an interest in this due to the complaints from constituents...

In the case I have outlined in earlier posts, the situation is vastly improved as the Managing Agent was replaced and the new Managing Agent is transparent and accountable, and operates to RICS guidelines - both owners and residents are much happier with the mangement of the development in terms on logistical 'on the ground' management and the corporate governance is also vastly improved.

Again, as BVI states, as regards open space housing developments the Management Company setup is much more straightforward than with apartment blocks (esp where many units), and shouldnt cost much annually or be much headache, due to less communal issues potentially impacting on each of the shareholders (eg no water leaks from one Apt into another etc) but it is essential to be aware of the issues.

I am also not criticizing all Managing Agents, there are good and bad as in every trade, however it is essential that shareholders in either Apt blocks or open space developments take an interest in the Management Company issues, make themselves aware of the setup and their rights and obligations under their lease agreement/relationship to it. It is in their interests to ensure Management Company is well run, either by themselves if they choose to do so or if by Managing Agent that it is accountable and transparent as the upkeep of their development and also desirability and saleability down the line could be affected if the development is poorly run logistically and also from a corporate governance perspective as conveyancers are increasingly examining this for prospective purchasers.

It's a familiar story, I myself bought a flat in London quite a while ago and encountered all the same issues. Best advice is simply to get out if you can. I've seen people become so wrapped up in fighting the managing agents (who in my experience were corrupt - managing agent owned the companies which carried out the work and the auditor of the accounts was a relative of one of the directors!) that it takes up all their free time. There's more to life unless you feel motivated to go on a crusade to change the law/regulation of this area.

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The Management Company belongs to the shareholders, not the residents, who may in some cases be tenants.. The issue in a number of cases has been that the Managing Agents have been obstructive when shareholders have attempted to enforce change, and there is little source of info for shareholders on how to go about effecting a change. Depending on lease terms or Arts & Mems of Management Company, whichever way Management Company setup, they likely need 5% of shareholders to call an EGM, or wait until the next AGM.. They will need to put down resolutions to appoint Directors, to then get 296 forms completed etc.. Most shareholders will not be aware of this, and some Managing Agents may not be forthcoming on how to do this as they may want want to become accountable to shareholders or be replaced.

I personally feel you are glossing over the issues a bit. It is fine for the developer who, once completion of the site has occured and Management Conpany handed to shareholders moves on to the next site with little residual responsibility for the running of the development. It is the shareholders who are left to grapple with the issues relating to the Management Company and the Managing Agent which has likely been appointed by the Developer, perhaps with little input from the shareholders. If shareholders are unhappy with the Agent chosen by the developer, this may be only after a period of time when the appearance etc of development has gone downhill. The developer will likely be denying any responsibility, even though they should surely bear some as having likely chosen and appointed the Managing Agent prior to their withdrawal from the development.

I agree that many of these issues are more pertinent in apartments where the sums of money involved are large due to communal logistics to be funded and managed..

In housing developments the required shared expense are largely just the landscaped areas, insuring same and perhaps some roadway so costs etc smaller, and less issues for disagreement to arise, but well worth being aware of the issues that have arisen re Managing Agents appointed to run developments and the Management Companies to which purchaser become shareholders in.

You are right that it is the older developments where issues are coming to light

The shareholders are the owners of the properties. On completion, each will be issued with a share certificate. It is a limited Co. and at the AGM or earlier is a sufficient number of shareholders call a special meeting they can simply vote out the management agent and propose another. The Management Co. is set up for the benefit of the house owners and is controlled by them. The builder/developer has no right to interfere in this process and rightly should be excluded from its operations.

It is a condition of modern planning that this Company is set-up by the developer prior to the first sale along with a management agent. Therefore leaving it impossible to involve future owners.

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