CMA Study

Posted by Stuart Prior

CMA adopts study into property management service providers

Later in 2014, the Competition and Markets Authority (CMA) will publish the results of the study it is currently conducting into the residential property management industry in England and Wales. The study was initiated in March 2014 by the Office of Fair Trading (OFT), but the work is now being continued and completed by the CMA, who have since assumed some of the responsibilities previously under OFT ownership.

Notable exclusions from the study are property management services in Scotland and Northern Ireland, and services for commercial properties. Services provided by letting agents will not be examined under this study. Originally local authorities and housing associations were beyond the scope of the study, but they have now been added to the remit.

Reasons for the study

The key purpose of the study is to assess the adequacy of services currently provided by property management companies, and whether they are offering value for money. There will be particular focus on the following areas:

• Whether cost effectiveness is a priority for property management companies as well as for leaseholders

• Leaseholder involvement in decision making

• Whether there is a need for more competition within the industry

• How subcontracted work is awarded and whether this is done without bias

• The effectiveness of leaseholders managing properties for themselves where this occurs

Companies managing retirement properties will come under particularly close scrutiny because this is an area where many concerns have been voiced. Any evidence of a two tier service, with an inferior service offered to more vulnerable customer such as the elderly, will be heavily criticised.

Possible outcomes

The findings of the report won’t be known until it is published later in the year, but it is possible that recommendations could include:

• Increased transparency for the customer on how service charges are set

• Greater leaseholder involvement in decision making,

• Competitive tendering requirements tightened for subcontracted services

• Tighter controls over vertical integration and consolidation within the property management industry

• A requirement for improved training and qualifications for property management

What could this mean for residential property management companies? Of course, it all depends on the results of the study, but it could well mean more paperwork and more meetings, for instance if the report includes recommendations to give leaseholders greater involvement. There may be quicker escalation of issues externally if tighter regulation and more scope for redress are introduced. There could be more restrictions around mergers and partnerships within the industry to promote greater competition and customer choice.

On a positive note, it could have its benefits. For example, the industry as a whole may be forced to become more professional, which could eliminate the “cowboy” companies whose poor service can damage the reputation of all property management companies. Leaseholders complain that service charges are high, but increased transparency around costs would help them to understand that good quality services cannot be provided cheaply.

It is also conceivable that there will be little change arising from the CMA study. When a similar review was conducted by the OFT in 2009, the recommendation was for self-regulation by the industry, despite the fact that the conclusion from the study was that the industry was “not working well for consumers”.

For now it is just a matter of waiting for the study to be completed and for its conclusions and recommendations to be published. Ultimately there should be no real cause for concern for property management companies who are already providing a good quality cost effective service to their customers.