Tenant Fees Bill

Further written evidence submitted by John Socha, Socha Estates (TFB56)

Submission to the House of Commons Committee on Letting Fees ban.

My company is Orchard Block Management Services Ltd (reg no. 0278 8021).

The business manages 102 apartment blocks, covering 1,700 apartments, principally in Northamptonshire, Bedfordshire, Leicestershire and Milton Keynes.

My wife and I have just celebrated in February 2018, 20 years of running the company.

We are members of ARMA (The Association of Residential Managing Agents) which has over 230-member firms nationwide.

The submission is with regards to the unforeseen consequences of the letting fees ban.

Many of the letting agents are now offering to look after apartment blocks.

The agents mistakenly think that having the names and addresses of all the landlords in an apartment block, they will pick up more clients.

I owned the two businesses side by side from 1998 until 2007. Our lettings business was sold in order that I could concentrate on the management of the freeholds that we own and manage apartment blocks on behalf of the owners of apartments.

One of the reasons for the disposal was that the "feed through" from the block management business to the lettings business did not occur.

We managed over 300 letting properties. In 9 years we only managed to pick up one client from the block management business.

This was my reason for disposal of the Lettings Business.

Most new Buy-to-Let landlords have already decided who they will appoint as the Lettings Agent before ever meeting the block manager.

The block manager is seen as a different creature. Caring for the common areas of the apartment block.

It is a low margin business.

The agent normally has a fixed fee which works out at £19 per month including VAT at 20%.

None of the clients can recover VAT, either as landlords or as members of the public.

This leaves only £15.83 to run the business on. So, to make money you must manage at least 500 apartments in order to generate sufficient funds to cover the running costs.

Client money protection for this sector is more important. The funds held for major works or just to have a reserve for repairs and updates can run into tens of thousands of pounds.

Since the announcement of the Letting Fees Ban, letting agents are now attempting to manage apartment blocks. In the last year we have had 5 new companies, all of whom are letting agents, set up in Northamptonshire to grab a share of what they see as easy money.

They will hold long term large sums of money on behalf of the owners. This does not occur to the same extent in the lettings business. The deposit being safely held in one of the three government approved schemes.

This will be despite not having any Client Money Protection Insurance.

A company our size can easily hold over £1,000,000 of reserve funds for the apartment blocks that they manage.

There needs to be a registration system for managing agents in England and Wales and to belong to a professional body like ARMA or RICS.

Client money protection needs to go side-by-side with registration.

The unforeseen consequence of the letting fee ban is placing very large sums of money, which are the reserves, built up over time in the hands of individuals, that if they are short of cash, will dip into a much bigger pot of money than that of the deposits they hold for the rental properties.

John Socha

Partner

Socha Estates

June 2018

 

Prepared 13th June 2018