Rents are twice the cost of new systems

FirstPort is in the news for all wrong reasons as affected leaseholders continue to fight and win legal battles against the UK's largest residential property management company. The latest victory of leaseholders at St David's Square over FirstPort shifts the spotlight on the potential of Freeholders and Managing Agents to abuse leaseholders.

It also highlights the need to involve all leaseholders to participate, as nonparticipating leaseholders may have to bear the legal costs. The dispute related to a service charge against the landlord and FirstPort dragged on for two years. St David's Square leaseholders and City Solicitor Liam Spender won the dispute, because of sheer perseverance. St David's Square is an exclusive development of nine blocks comprising 436 flats. Liam Spender a leaseholder at St David’s Square, besides being a City Solicitor, led the case. On the eve of the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal, the landlord caved in on insurance commissions for an average sum of £270 per leaseholder.

Rents are twice the cost of new systems

The property management company continued to charge hefty insurance charges and rents for electronic door entry systems, comprising intercom, TV, door entry, and gates. FirstPort leased the electronic door entry and video intercom system from Countryside Communications. The rentals for these hardware items amount to ten percent of service charges, according to an understanding between FirstPort and Countryside. Interestingly, there is nothing in writing to substantiate it.

The FirstPort site manager and the regional manager never knew about the contract to cover £200,000 annual cost, resulting in its rollover after the expiry in July 2020. None of the managers at FirstPort took pain to ask for the justification to pay the enormous costs from service money to Countryside. The total costs were double the installation and purchasing costs of the system. Leaseholders overpaid £18,000 annually for over 20 years.

The payments continued in 2021, 2022, and 2023. Poor concierge service was another issue, as leaseholders were paying £90,000 charges for the services. In effect, the leaseholders had to pay for the landlord's mistakes.

The incompetence of FitstPort Property Management Company

The auditor of FirstPort and the management accepted their failure to detect the wrong charging percentage for service charges that went on for 20 years. FirstPort did not offer a precise explanation when the auditor enquired about more funds coming in than the actual estimates. The tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal expressed deep concern over FirstPort's incompetence.

The landlord insisted leaseholders should pay the legal charges despite their conceding to £100,000 insurance charges. However, the legal cost protection will cover only 101 leaseholders who participated, as per the existing law. It will not include the remaining 335 leaseholders who did not participate. They will not get any benefit from the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal orders which apply to just the leaseholders who participated. Apathy means those leaseholders who should have joined the First Tier tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal but did not, still pay the insurance commissions and now the landlord's cost too - had they joined in, which would have cost them almost nothing, this would have ensured a clear victory for all.

RTM is a better option

Leaseholders can avoid free-hold-leasehold scams by considering the Right to manage option. The Right to Manage option enables leaseholders to take charge and choose their managing agent without having to raise lots of money to buy the freehold. The outcome can be quality services, besides a significant reduction in service charge costs. RTM entitles leaseholders to decide what they want from a Managing Agent. They can choose the right managing agent to ensure value for money.

Old-school managing agents like FirstPort feel they can scam leaseholders and get away with it because of their sheer size and position. However, recent developments suggest leaseholders are fighting back. Major credit should go to Mr. Spender, who continued the legal battle for two long years, offering his time freely to his fellow leaseholders. Our Ringley top tip is to look at your service charge accounts, as by law the managing agent or property management company must disclose any insurance commissions they receive. Although, as it stands currently, the Insurance Act 2016 does not require the Freeholder to have to do so.

Insurance commissions are not entirely unearned, as the Financial Conduct Authority rules require all managing agents to be regulated at their expense just to get insurance quotes from a broker and pay the bill. Naturally, brokers work entirely off commission and the managing agent has to recover their FCA Regulation costs and the non-servicechargesorted.co.uk/blogs/block-management-service-charges-how-it-affects-the-stakeholders'>block management costs of assisting leaseholders with non-communal insurance claims. We at Ringley offer two pricing options:

Option 1: £0 insurance commission and a fee supplement to cover FCA Regulatory costs and then the option for owners who want assistance with insurance claims to pay for this as a Schedule 11 admit situation charge where assistance goes beyond the signposting to the insurer that the RICS Code of Practice for Residential Property Management requires.

B) A lower fee per unit and Ringley to take the insurance commission.

What level of insurance commission is reasonable?

Typically any insurance commissions Ringley receives are about 15% of the premium, whereas we are aware of unscrupulous freeholders often charging up to 45% which is why most insurance commission cases tend to be settled outside the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal.

How can an insurance commission be challenged?

It is always worth talking to Ringley Law if you are worried about insurance commissions, this type of tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal case is relatively cheap and easy to take and will most likely be settled outside formal tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal proceedings.

What law requires insurance commissions to be disclosed?

Arguably, insurance commissions taken by managing agents since the Insurance Act 2016 are to some extent self-regulating because, unlike Freeholders, Managing Agents are required to disclose any insurance commissions they receive in the service charge accounts. Our view is that reputable Managing Agents should follow the Ringley example and charge a lower fee where they manage insurance matters which in part subsidizes this extra work and pays for the time and expense of FCA Regulation, and a higher fee where they do not.

How are insurance and insurance commissions regulated?

The FCA, the Financial Conduct Authority, must regulate managing agents that place insurance. This requires annual return submission and professionals to prepare and submit returns as we as responsible persons to be named on the register. Therefore, the fact that a managing agent has to comply with FCA Regulations does incur a cost.

What law requires disclosure of insurance commissions?

Currently, the Insurance Act 2016 requires managing agents and property management companies to disclose insurance commissions but does not require the Freeholder to do so. The extra work insurance commissions fund includes completing proposal forms, preparing declarations, subsidence investigations, Administering and signposting claims, FCA returns, and providing policy details to persons buying and selling their properties or mortgaging.

At Ringley, we see no reason why Freeholders should not be required to disclose the commissions they receive.

The incompetence of Fitst Port Property Management Company

RTM is a better option

How can an insurance commission be challenged?

How are insurance and insurance commissions regulated?

What law requires disclosure of insurance commissions?