What does 'Managing Agents' mean when buying a property?
Find out what Managing Agents means when you are buying a property. 'What does Managing Agents mean?' plus over 150 other property related terms and jargon in plain English
To understand the role of a Managing Agent you need to understand Leasehold and Freehold. If you do then just skip on to the next heading.
Leaseholders and Freeholders
This is best explained with an example. Let's say I own a building with 3 flats in it. That makes me the freeholder.
I say to you, "You can live in Flat 1 for the next 99 years if you pay me £X;" and you agree. We negotiate an agreement known as "The Lease" which formalizes this deal as a legally binding contract. You then become the leaseholder of a 99 year lease.
Enter the Managing Agent
As the Freeholder I will have some obligations such as maintaining certain parts of the property and paying bills for things like electricity in the communal areas or, if we're talking upmarket, the salaries of reception desk staff.
As the leaseholder you will have certain obligations such as limits on anti-social behaviour and annual payments to me so I can pay for my maintenance and running cost obligations.
So I have to collect your annual payments (known as the service charge), hire maintenance people when needed, organize for builders when there are major works needed, pay bills, etc, etc. It all sounds like a lot of work.
So instead I'll farm all that flaffing around out to a managing agent - a company that does that sort of thing all the time for lots of other Freeholders.
Managing agents, like all organizations, come in all shapes and sizes and range from the highly competent to the utterly useless.
What you need from a Managing Agent?
When you're buying a leasehold you want to be sure what the service charge is and so the standard inquiry your solicitor will ask is for the last three years accounts - the "Managing Agent's Accounts".
That will show if things jump around alot or if the payments were fairly stable. They'll also show if the managing agent has a Sink Fund for the property - a pot of cash for a rainy day such as when the roof of the building will need replaced or the facade will need repair and redecoration.
If there's nothing in the pot then when a big job comes up (and roofs as an example need to be replaced every 20 years or so) your going to get some big bills. That doesn't mean you shouldn't buy the property but it will help you budget.
Your solicitor will also ask what works have been carried out recently and what works are planned.
It'll give you an idea of how well run the building is. In a well maintained block the exterior will be redecorated every 7 to 10 years and the communal areas should also see similar treatment.
It, along with the sink fund, will also give you an idea of any up coming costs you might expect.
All these questions are known as the Managing Agent Enquiries.
Managing Agents in your property purchase
Switched on and competent Managing Agents will send out the requested accounts and answers to the Managing Agent Inquiries in a couple of days. If they manage large numbers of buildings this is all part of the course where leasehold properties they manage are bought and sold all the time.
But not all Managing Agents are switched on and competent. No one likes paying their service charge so managing agents often cut corners on staffing which means they are constantly overworked and slow to respond. Or they might simply be a small organization and "Barbara is on holiday for two weeks and she's the only one who knows how to print the accounts" is not uncommon.
How to handle Managing Agents
A traditional solicitor does thinks in a linear way. He'll tell you that first you should get your survey done and then he'll look at the contract and then he'll raise inquires from the seller and when those are answered he'll ask for the managing agents accounts, etc.
Solicitors think that by acting this way they might save you money. By edging forward you won't spend more than you need if there is anything unexpected at each step. But what this type of solicitor doesn't understand is that Time Costs Deals. The longer you take the more likely it is that the deal will fall through.
There's little reason why it needs to be done this way and as you are paying your solicitor you can instruct them to do otherwise. Getting a response from the Managing Agents can be one of the longest delays so get the requests in from day one.
In How to Really Buy a Property I'll show you how to handle Managing Agents and how to look for warning signs that they could be trouble if you decide to go through with the sale.