The issues surrounding property factors in Scotland have been in the spotlight over the past few years. In 2007, concerns from homeowners and tenants regarding excessive administration charges, and lack of remedies against factors, led to the OFT investigating factors in Scotland and publishing a market study. Following from this, the Scottish Government launched a public consultation on a self-regulatory accreditation scheme for property factors. In contrast, Patricia Ferguson MSP introduced a Bill to the Scottish Parliament on 1 June 2010 suggesting a more robust registration scheme.
Scottish Government Voluntary Scheme
The Scottish Government's view was that a self regulated voluntary scheme would be the best approach to tackle the issues found in the OFT market study.
On 10 May 2010, the Scottish Government announced a public consultation paper on its proposed voluntary scheme, and launched "Quality in Common - Residential Property Managers and Land Maintenance Companies in Scotland: Core Standards for a Voluntary Accreditation Scheme". Eight "responsible and realistic" core standards have been developed, and property managers must agree to comply with all of the following standards in order to join the accreditation scheme:
Property Management Services - each customer to be provided with clear and transparent written statement of services, including the extent and conditions of services, responsibilities of the property manager and homeowners, the management fee structure, information about how fees will be billed and divided among homeowners, and how complaints will be handled and resolved.
Communication and Consultation - communication should be prompt, courteous and accurate. A consultation procedure should be set up, and Owners' Associations actively encouraged.
Financial Obligations - regular billing arrangements, including detailed financial breakdown and description of services provided and works carried out should be sent to consumers in writing at least twice a year. Information regarding bank accounts and any interest earned on customer monies also to be available.
Debt Recovery - clear written procedures for debt recovery, and all charges to be reasonable with no legal action being taken before the property manager has notified the consumer.
Insurance - if the service contract includes arranging insurance, certain standards will apply, including maintenance of adequate professional indemnity insurance, the use of reputable insurance companies and a procedure in place to submit insurance claims on behalf of consumers.
Contractors and Repairs - procedures for notification by consumers of matters requiring repair, maintenance or attention. Only skilled and experienced contractors will be used and estimated timescales for completion will be provided to consumers. Property managers should also be able to show how and why certain contractors were appointed.
Complaints Resolution - a written complaints resolution procedure to be in place, with details made available to the accreditation body or for auditing purposes. No charge to be made for handling complaints, which will be responded to within prompt and reasonable timescales, with response times published. There will be a redress system for consumers who are unhappy with the outcome of the complaints procedure.
Staff Training - training to be provided to each member of the property manager's staff.
As the Scottish Government scheme is still at the consultation process, the core standards are yet to be developed. Further guidance will be provided in the future, clarifying the implications of any breach of the standards. It would appear at this stage that breach would result in accreditation being removed.
The benefits to consumers include better awareness and choice, access to redress and improved property condition and value. If the voluntary scheme had widespread backing, and property managers were keen to obtain accreditation, it seems the core standards would resolve many of the current problems and would help alleviate many of the concerns consumers have had in the past. The cost of a self regulated scheme is likely to be far less than if legislation was implemented.
However, the voluntary scheme could prove ineffective for several reasons. Firstly, and most obviously, the voluntary nature of the scheme would mean property managers would not need to seek accreditation. This would still allow the factors who are most often complained about to continue to work as property managers with no need to prove adherence to the scheme. Self-regulation does not address the issue of those working as property managers but who are unfit to do so. There already exists a body of property managers in Scotland - Property Managers Association Scotland Limited. The Association contains a large number of property managers within its membership. It also has a Code of Practice with a number of aims similar to the core standards suggested by the Scottish Government, albeit that the Code of Practice is rather more general in its aspirations. However, the presence of a voluntary body of property managers aiming to protect homeowners and tenants does not seem to have quelled levels of consumer dissatisfaction.
In the voluntary scheme, there would be no real disadvantage for a property manager who was part of the scheme but who lost accreditation due to breach of the standards. Nonetheless, as the standards are expanded following the consultation period, the scheme could impose severe consequences for breach of a standard. Similar voluntary schemes have incorporated strict penalties for members in breach. For example, the Consumer Code for Home Builders (also set up following an OFT market study) has a range of sanctions available when a Home Builder is in serious breach. This includes removal from the warranty body's register (such as NHBC) and would impact massively on the home builder's ability to sell properties. Further, if tough sanctions were imposed, it could prove to be a disincentive to property managers considering signing up to the voluntary scheme.
As an alternative approach to a voluntary scheme, the Property Factors (Scotland) Bill has recently been introduced in the Scottish Parliament.
The purpose of the Bill is to introduce a statutory framework "to regulate the behaviour and conduct of property factors in Scotland". The first part of the Bill requires a public register of property factors of residential premises in Scotland to be maintained, whilst the second part of the Bill would create an alternative dispute resolution system between property managers and homeowners.
Under the Bill's proposals, property factors would face a mandatory system of registration, as operating as a property factor without registration would be an offence. To obtain registration, a property factor would need to be deemed "a fit and proper person". For the purposes of deciding whether the factor is indeed a fit and proper person, matters such as prior convictions, previous unlawful discrimination and contravention of laws relating to tenements, property or debt will be taken into account.
A proposed statutory code of conduct would be put in place, and all registered property factors would need to "ensure reasonable compliance". Members who do not meet the standards stipulated in the code could potentially face de-registration. As the Bill makes operating as a property factor without registration an offence, potentially resulting in a fine or imprisonment, one can imagine that property managers would be keen to adhere to the code of conduct.
Nonetheless, in a practical sense, de-registration could pose a problem rather than a remedy where homeowners are concerned. If a property manager is de-registered and can therefore no longer practice, who will take over the running of the properties in their control? It may be left to residents to take on a management role and organise services themselves, which will not be what is intended by Deeds of Conditions setting out management provisions.
There will also undoubtedly be costs incurred by property managers when obtaining registration and ensuring compliance with the code of conduct. There is therefore a real possibility that such costs will be passed on to consumers as part of a "management fee".
The second part of the Bill proposes a new type of alternative dispute resolution, in the form of the Homeowner Housing Panel (HHP) and Homeowner Housing Committee (HHC). These bodies would have similar functions to the private rented housing panel and private rented housing committee established by the Housing (Scotland) Act 2006.
A homeowner could apply in writing to the HHP for a determination of whether their property factor had failed to comply with the code of conduct or a contract term. The matter could then be referred to the HHC, who could issue enforcement orders and decide on any financial recompense due to the homeowner. A case would only be referred to the HHC where the parties had tried and failed to resolve matters through the property factor's own complaints procedure. This would hopefully encourage disagreements to be resolved internally and amicably, if possible.
Pros and cons to both proposals
Both voluntary self-regulation and mandatory registration have their advantages and disadvantages.
A voluntary scheme, such as that proposed by the Scottish Government, would be regulated by those at the heart of the industry, and would allow for more flexibility in meeting the changing needs of both homeowners and property managers. It would also be less costly than legislation, which is a significant consideration when taking into account what is important to consumers.
However, a voluntary self-regulation scheme opens itself to many difficulties. There is no guarantee that the scheme would receive the backing it would need to fulfil its potentials. Also, the implications of a breach of the scheme's standards would not have any real impact on the work of an improper property manager. In order for the scheme to work, it would need to impose severe sanctions on those who do breach the standards, whilst somehow also making sure that property managers want to voluntarily sign up.
A mandatory registration scheme, as suggested in the Parliamentary Bill, would allow the type of persons operating as property managers in Scotland to be regulated. This, together with the dispute resolution methods available, would hopefully serve to eliminate unfit and improper property managers, and restore consumer satisfaction. However, such a system could potentially lead to further costs for consumers and could lead to situations whereby groups of residents are left without a property manager.
Both methods of regulation will need to be expanded upon and examined in further detail. Consultation with consumers and property managers alike should hopefully help to find the best way forward.