United Kingdom - OFT launches market study into residential property management services

The OFT has today launched a market study into the provision of residential property management services to leaseholders in England and Wales.

Having sought views on the scope of the study, the OFT has decided to widen its investigation to include residential property management services for properties where local authorities and housing associations are the freeholders, as well as those with private sector freeholders. These have been brought within scope because of similarities in the concerns expressed by respondents in relation to the provision of property management services to former local authority properties.

Estimates vary but there may be as many as five million leaseholders in England and Wales.

The OFT will look at whether the residential property management services market is working well for leaseholders and freeholders, including:

• whether managing agents and freeholders have the same interests as leaseholders in, for example, keeping down costs for maintenance work or building insurance
• whether leaseholders have sufficient influence on decisions taken by freeholders or others on the appointment of managing agents and the supply of residential property management services 
• whether there are barriers to switching and whether competition between property managers more generally is working well
• whether managing agents' and freeholders' choice of contractors and services may be influenced by links with associated companies and the availability of financial commissions
• whether it works well in practice when leaseholders exercise their right to manage their own properties.

Leaseholders typically pay a service charge to cover costs for the maintenance and management of their shared building. Regular instalments into a 'sinking fund' may also cover other significant expenses, such as roof maintenance. A property management company is often used to provide maintenance, cleaning or building work. Property management companies may provide the services themselves or through contractors. In some cases, such as where right-to-manage powers have been exercised, responsibility rests with the leaseholders and they may appoint a property management company to organise these services.

In April 2014, the Competition and Markets Authority (CMA) takes on the existing competition and some of the consumer protection functions of the OFT. The CMA will publish the final report before the end of the year.

Rachel Merelie, Senior Responsible Officer for the study, said:

'Service charges for the maintenance of a building can be substantial and we want to make sure that leaseholders are getting a fair deal.

'We are concerned that management agents and freeholders may not be incentivised to keep maintenance costs down and that leaseholders may not receive value for money.

'We will look at whether there is sufficient competition in the market generally as well as taking a close look at specific areas which have been brought to our attention, including services provided to retirement properties.'

NOTES

1. For more information see the market study page.
2. The following are not within the currently proposed scope:
   
   - management services for commercial properties
   - letting agents
   - land management services
   - an assessment of the legal framework that underpins freehold and leasehold arrangements in England and Wales (the study will consider the leasehold and freehold relationship, but only insofar as it impacts on the supply of property management services)
   - services in Scotland and Northern Ireland where different legal frameworks apply.
3. In February 2009, the OFT published a study into the Scottish property management market, which found that the market was not working well and made a number of recommendations.
4. Market studies are carried out using powers under section 5 of the Enterprise Act 2002 (EA02) which allows the OFT to obtain information and conduct research. Effectively, they allow a market-wide consideration of both competition and consumer issues. Market studies take an overview of regulatory and other economic drivers in the market and consumer and business behaviour. Possible outcomes of market studies include: enforcement action, a more in-depth market investigation by a panel of independent members, recommendations for changes in laws and regulations, recommendations to regulators, self-regulatory bodies and others to consider changes to their rules, recommendations for campaigns to promote consumer education and awareness, or a clean bill of health.
5. On 1 April 2014, the Competition and Markets Authority (CMA) will become the UK's lead competition and consumer body. The CMA will bring together the existing competition and certain consumer protection functions of the Office of Fair Trading and the responsibilities of the Competition Commission, as amended by the Enterprise and Regulatory Reform Act 2013.

Read the press release.