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Do you own a flat? Are you being fleeced?

(weekend blog)

Slight change of subject today.

It’s the same the whole world over

For most of my life I’ve lived in detached houses, in the UK and abroad. However, for a few years while I was travelling a lot, I moved into a penthouse flat as it was much more secure than a house when left empty for months at a time. I also have a small condo in an exotic country often referred to as the Land of Smells (LoS) or something like that.

So what?

The ‘so what’ is that I was rather amused to see the property management companies in the UK and 6,000 miles away in the LoS using the same tricks to fleece flat-owners.

Here are just four tricks that I’ve come across. Readers can add some more by clicking on the headline.

Money, money, money

Trick 1 – The overcharge

Whenever commissioning work – painting, carpet replacement, new security system, roof replacement etc – the management companies in the UK would get three quotes for the work and choose the one that supposedly offered the best value. But strangely, when I privately got quotes for the work (without telling the management company) the prices I got were around 30% cheaper than the ones the supposedly ‘professional’ management company received.

Basically, the management companies in the UK and the LoS were allowing suppliers to massively overcharge for any work and then were taking a cut from the money fleeced from flat-owners.

Perhaps amusingly, I decided to play the same game. Some work needed to be done in my flat to prevent rain-water leaking in under some large sliding patio doors which led out to my roof terrace. As usual, the management company got their three prices. I contacted a company which came with a price around 30% cheaper than the management company. So, I did a deal with that building company – if they submitted a quote just 10% below the management company’s prices and threw in new patio door/windows free of charge for me, I’d get the management company to use their services.

These are the  kind of patio window/doors I mean:

Often those who make a killing by cheating others are so arrogant and so convinced of their own superiority that they never expect their own tricks will be used against them.

Trick 2 – Unnecessary or premature work

As far as I understand, most property management companies get a fixed payment each year depending on how many flats there are in the building. However, the management company also gets extra money if any building or repair work is needed as this clearly entails extra work for them. So it is hugely in the management company’s interest to get as much work commissioned as possible. Thus you will often find things like carpets being renewed when the existing ones are still in good condition, lots of painting work and, the biggest earners of all, flat roofs or lifts being replaced as soon as the initial guarantee runs out even if the roof or lift is still in an acceptable condition.

Trick 3 – The insurance con

Typically the management company will organise insurance for the building. It appears to be accepted practice that the insurance companies pay the management company a kick-back every time the insurance is renewed. From what I understand, the professional trade body ARMA (Association of Residential Managing Agents) approve of this practice of kick-backs from insurance companies. ARMA claims to be the leading trade association for residential leasehold management in England and Wales – “Setting the standards in property management”. ARMA has members across the UK and claims that to be a member management companies have to “adhere to a strict set of standards”.

Trick 4 – Building their own property empires

Given that owners and employees of property management companies work in the property business, they will know which blocks of flats are the most lucrative for anyone owning a rental flat and they will know when flats are for sale. This allows some owners and employees of the property management company to start building their own portfolios of rental properties. Then when a couple of thousand pounds of electrical or plumbing or other maintenance work is needed on their rental properties, they commission the work and just charge it to the building’s general maintenance or sinking fund. Thus they get the other flat-owners to pay for maintenance of their private property portfolios. After all, what flat-owner ever goes through the financial accounts for their building and identifies exactly what work was done by examining every single invoice submitted each year? None. And certainly not the building’s usually useless Board members.

What about the Board?

Most blocks of flats choose a Board whose job it is to liaise with the management company and ensure the flat-owners are getting good value from the management company. But this usually doesn’t work because the kind of people elected to the Board are often those least well-equipped to be effective in defending flat-owners’ interests.

If a flat-owner has a challenging and/or responsible job, or a hectic family life, or a busy social life, they’ll often be reluctant to take on the extra work of being a Board member. So, those who do put themselves forward are often those with rather uninspiring jobs and/or lives and who see becoming a Board member as boosting their own sense of self-importance and giving them the position – a Board member – they haven’t managed to achieve in their lives.

In life, people’s awareness of their limitations is usually inversely proportional to their intelligence. So such people are often unaware of their own weaknesses and are easily manipulated by the property management company. A ‘successful’ management company can even manipulate weak-minded Board members to take the management company’s side in any disputes with flat-owners.

A licence to steal?

I suspect some of the most corrupt companies in Britain are property management companies managing blocks of flats.

Starting a property management company can look like just being a licence to steal.

5 comments to Do you own a flat? Are you being fleeced?

  • Ian j

    Points well made, but you have missed out the big con: i.e. leaseholds and ground rent as opposed to freehold ownership. It is even being aplied to estates of houses these days (not just flats)

  • twi5ted

    Also exercising the right to purchase the freehold. There is very little transparency around valuation and no set guidelines. It depends on the opinion of the valuers and hence different firms will provide different values. Likewise extending leases is a similar rort shielded in opacity. And as you point out its lambs to the slaughter as inexperienced retired well meaning old ladies come face to face with legal and property sharks.

  • Stillreading

    Friends of mine had a flat in Spain for some years, an escape to winter sun, and they were ripped off as you describe. Eventually the cost of unnecessary “repairs” and non-existent “maintenance” and the knowledge that they were being fleeced caused them to sell, probably to another gullible English middle-aged couple. However, as two readers have already commented, the most deplorable, and utterly inexcusable, scam being perpetrated upon the unaware right here in the UK is the sale of new-build properties where the ground on which the property stands is leasehold. Young people, embarking on property ownership for the first time in their lives, possibly being the first generation in their families ever to aspire to home ownership, have been conned into taking on mortgages for properties which because of the uncontrolled, escalating annual ground rent charges, are now unsaleable. And what do we hear from the Gvt., from the FCA? The usual “lessons have been learned”, “we won’t let this happen again”. Words, words, words and precious little action. Even if this scam is stopped now, what about those already in the trap? Nothing is being done to aid them. They were told by the seller by the sellers – the giant building companies with whose names we are all familiar which solicitors to use for conveyancing, solicitors who in reality were acting for the Company, not the purchaser. I have wondered for some time where the Law Society stands on this and why they have not come out against this clearly corrupt practice and sanctioned the solicitors who participated in it. Caveat emptor yet again, anyone who is embarking on property purchase abroad or in the UK.

  • A Thorpe

    A reminder of the life I finally left behind 15 years ago when I bought my first detached house after just over 35 years of flat dwelling. My first flat was new and a small block and the problem we had there was contractors not turning up to do the routine work. We eventually persuaded the freeholder to allow us to do the work and that worked well.

    The next was a large block with extensive grounds and a resident caretaker, and very well kept when I viewed it. By the time I moved in the caretaker had left and the rot set in. We had years of caretakers moonlighting and not staying in the job. The flat was also only a few years old so no major maintenance initially. The freeholder was the builder and the manager was one of the family so they knew what they were doing. They sold the freehold and we bought it and that was the start of bigger problems. It was too big for us to manage and so we needed an agent. The Board of the company we formed did not think they had to consult the rest of the residents and they constantly interfered in the management and with workmen on site. The biggest problem was that the lease did not include a sinking fund for maintenance so there was never any money. Residents would not change the terms of the lease. Surprisingly the management company paid for everything before asking us for the money, so perhaps they are not all bad. But when any major work came up residents who did not benefit from it did not want to pay; say ground floor residents not using lifts or those not on the top floor suffering from flat roof leaks. Ownership of the freehold was worse than leasehold in my view. I had to take legal action to get maintenance done, and on the advice of my solicitor I sold it and moved to a detached house.

    At the moment the flat roof needs replacing and the first estimate is £250,000. One lift has been out of action since last October waiting for parts to come from Italy.

    It isn’t just the cost of repairs, it is getting them done to a good standard and the serious problems caused by lifts out of action for less mobile residents. I see the lift issue cropping up regularly in the local news with council blocks. There is also the issue of safety. In my private block I could not get smoke alarms installed and the fire doors to the stairs were always open. Flat residents are a danger to themselves and others.

    Whilst flats have benefits when I visit London and see the high rise flats starting at East Croydon and then in south London they look now absolutely dreadful. This is not the way humans should live, but it is increasingly the only option in overcrowded cities. There are certainly not the places to raise a family. Compared to some cities, the UK is not too bad, but look at some of the communist style prison blocks for hell on earth. It can only get worse with population growth.

  • Ian J

    Further to my comment, I read today that letting agents have found ways to circumvent deposit/fee legislation and continue to fleece short term tenants. It seems to me that we are expecting the people who own/manage lesehold properties to police themselves. caveat emptor, as usual

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