With the increase in for profit registered providers and other new entrants into the affordable housing market, there is growing demand for property management services offered by organisations with a successful track record. Demand for management services offers existing housing associations the chance to diversify sources of income.
Whilst a property management agreement may seem straightforward in principle, providing services in return for a fee, in practice there are key stakeholders views which need to be considered. This article focuses on management of tenanted properties and considers what the priorities of the other interested parties might be.
Residents
Resident experience of property management is a key priority. Reputation is important for both landlords and managing agents, particularly if the agent is a housing association.
“Trust in the ability of an agent to perform, and incentives to perform, will be high up the agenda of any landlord.”
In order to incentivise performance, key performance indicators (KPIs) or other performance management provisions may be included.
Good performance management indicators will be objectively measurable, subject to regular reporting requirements, and provide for an appropriate remedy mechanism. The parties may consider agreeing an “action plan” for improving performance in such a scenario, or even the possibility of part-suspension of services – this may be more beneficial than the blunt instrument of a full termination right. The right to terminate may be due to a single ‘material’ default, or cumulative ‘minor’ defaults which, when taken together, can have a serious impact on reputation and resident experience.
Delegating all practical obligations is not only beneficial to a landlord, but also means residents have a “one stop shop” for raising queries or concerns.
Exit procedures can be particularly important to the resident experience. However a management agreement ends, it is crucial to have an orderly handover to a new provider. This will require co-operation on handover of documents, notifying tenants, and financial reconciliation. Depending on the arrangement, more complex exit matters may arise such as transfer of employees under TUPE, destruction of data and the removal of trademarks.
The parties may agree to a general no fault break right, which may be more appropriate in a long term arrangement, although a landlord may prioritise certainty of provision of services over flexibility. Where a general break right is exercised, the agent may require a compensation payment instead of the income from the remainder of the contract.
Sub-contracting abilities should be considered too, including potential vetting of appointments of third parties. This applies particularly to those who will have tenant contact.
Poor resident experience can have implications for an RP’s relationship with the regulator.
Regulator
Part of the remit of the Regulator of Social Housing is to ensure consumer standards are upheld. They, and therefore landlords, will be concerned with performance management. Inclusion of performance management provisions in arrangements can help achieve that goal. To incentivise performance, a landlord may consider linking any management fee to performance against KPIs.
Poor management performance may result in a downgrade by the Regulator for failing to meet regulatory standards. This may have a knock-on effect on the ability to obtain grant funding or other outside debt.
Lenders
If security has been granted over a property owned by a forprofit provider to obtain funding, the lender may have its own requirements relating to the management of the property.
It may require the ability to exercise its security and make a sale with management arrangements already in place. It may not want to give the agent the right to walk away should ownership of the property change hands. Lenders may also want a right of step-in in certain circumstances. To ensure a contractual nexus, a duty of care may be required from the managing agent for the benefit of the lender.
Third party agreements
The procurement and operation of management services may be governed in part by third party agreements.
These might include compliance with nomination agreements, required by local authorities, which will impact on a managing agent’s lettings process. Section 106 agreements may impose other ongoing requirements of a local authority, such as ensuring developments remain car-free.
Where property has been bought or developed with the benefit of grant funding, there may be ongoing management obligations requiring compliance with GLA or Homes England capital funding guides (covering issues such as rent levels, forms of lettings and, in limited cases, standards of repair works).
Administration
The landlord and managing agent will share an interest in keeping administration to a minimum throughout the term of any agreement.
This can have an impact on many areas. Will the management fee be fixed, rather than requiring calculation by reference to KPIs (or other factors)? What will be the extent of the KPIs, and the associated reporting requirements? Who will be responsible for pursuing rent arrears?
It may be necessary for the scope of services to be updated or revised over the term of any agreement. Rather than requiring a formal legal variation to existing arrangements, the parties may include flexibility for the landlord to instruct, or the managing agent to offer, additional services, the need for which may become apparent over time.
The affordable housing market contains key stakeholders which may not be apparent to new entrants, and careful consideration of the impact on all interested parties should be given at the outset of instructions.
