What Is To Be Done about Residents Management Companies?
After my recent talk at Land Talks #1 I noted that I hadn't really done justice to the questions from the floor:
The talk was about the UK's "Residents Management Companies". These are not-for-profit companies comprising the owners of flats or houses in a particular location.
The questions
I was lucky to get a run of very good questions:
- How much does last year's legislation help?
- What would the ideal situation look like, in 20 years time?
- What can be done to get the existing RMCs handed over to their members?
Q1. How much did the 2024 reforms help?
A bit - particularly the estate management stuff.
The Leasehold and Freehold Reform Act 2024 ("LAFRA") is not primarily targeted at the issue of disguised control of existing management structures for residential property. It deals with a range of adjacent concerns instead, and focuses on extending and improving the measures enacted in legislation from 1985 to 2002, rather than addressing the mechanisms the industry has created to sidestep the 1985-2002 reforms.
LAFRA does cover some of the downstream consequences of the issue, allowing a single aggrieved homeowner to have a manager replaced when proving fault in court. But this is different from measures to ensure mutualised control of management as a right, and of course penalises existing cooperative and mutual arrangements.
Q2. What would the ideal situation look like in 20 years' time?
Fundamentally there needs to be a re-alignment of any misaligned incentives. Management of all collective residential property should be required to be mutualised.
The scope of the talk was collective residential property in England, i.e., blocks of flats, and estates with privately-owned common areas such as car parks, gardens, paths and so on. There's a broad range of existing ownership and management arrangements, and non-exhaustive statutory rights to own or manage the collective spaces.
The power to appoint the manager of property ("PAMP") is an under-recognised asset. But is not a property right protected by human rights law, and hasn't been the subject of the ECHR challenges to legislation in this area. In a future ideal world, the PAMP would be automatically vested in those paying the bills who benefit from whatever management services are being provided.
The problem decomposes into four categories:
- site where management is already mutualised
- sites where the power to appoint the management is already vested in a site-specific body that is somehow not controlled by the homeowners (the subject of my talk)
- sites where such a body could be created
- a residuum of very hard cases, like a single flat in a large commercial building
Basically the solution is forcing the middle two categories above to become part of the first category.
For legal (ECHR Article 11), moral, and practical reasons, we cannot forcibly register people as members of newly-created management companies. Local government parish meetings provide a viable alternative model, where responsibility is held in trust, for the relevant group of residents regardless of their consent or knowledge, by individuals who *did* agree to participate.
Q3. How can the existing population of RMCs be transferred to member control?
In some cases, it can already happen voluntarily or due to activist pressure.
In practice it may be possible to get MPs to pressure homebuilders, investors and managing agents to hand some of them over.
There are significant problems with very large new build estates that are not fully built out, where the developer's appointees retains control of the management of trivial spaces in areas of the development that were completed more than a decade ago.
Fundamentally it won't change without primary legislation, which could be along the lines of the previous answer.