Management agreements and good block management

The management agreement between the managing agent and the freeholder or Residents Management Company (RMC) essentially sets out how the block will be run. Also known as terms of appointment, this document supports the smooth running and management of your developments.

Helen Carey of Brady Solicitors explains why you need a management agreement whenever you take on a new block.

Agreeing to take over a new block needs more than a chat and a handshake (or an elbow bump, of course).

There’s a lot for managing agents to consider when taking on the management of a new block beyond the handover process. A key document you will need during this period is a well-drafted terms of appointment or management agreement.

It’s surprising however just how many managing agents operate with no formal signed agreement in place. Without a signed contract you can be opening yourself up to significant risks, particularly if a dispute arises.

Should you go for a templated management agreement or a more bespoke option?

Some managing agents may be happy to rely on a standard-form template for their management agreement. Templates can save you time and expense and are definitely better than nothing, but they won’t address the specific requirements of the block you are going to be managing and the challenges you may be dealing with.

As every block comes with different challenges, we would always recommend that you should consider having your terms of appointment drawn up by solicitors experienced in block management, to make sure that they reflect both your and the freeholder or RMC’s needs and, importantly, that they clearly set out what happens should the relationship break down.

When should you discuss the management agreement?

Whilst it might seem that raising the nitty gritty of the management agreement during the tendering process could adversely affect your chances of winning the block, this is actually the ideal time to discuss and agree the proposed terms. Communication channels are open, and you can work with your prospective RMC or freeholder client to set expectations on both sides and start the working relationship on a positive footing.

What should you include in your managing agent terms of appointment?

These documents don’t need to be overly complex, but they do need to clearly set out expectations. Key areas that Brady Solicitors would expect to see in a solid management agreement include:

  • The charging structure: what’s included in the basic fee, and when the fee is reviewed.
  • Any extra services you will need to charge for.
  • Clarification of your permission to serve service charge demands and issue proceedings on behalf of the freeholder/RMC.
  • The duration of the Terms of Appointment. (If it is for more than a year it will likely make it a Qualifying Long-Term Agreement, so you may wish to keep it to just under 365 days. Read more about QLTAs here.)
  • An indemnity clause to protect you from being out-of-pocket during and also after your appointment if it is terminated.
  • Your service standards so your client knows what they can expect from you.
  • Details of what works you will carry out at the development, and also what you won’t do.
  • Clarification that any action you take is taken in the name of the client and not in your own name.
  • How the client can terminate your appointment and how much notice they must give.
  • Authorisation to instruct solicitors to recover service charge arrears and ground rent arrears.
  • A clear position in terms of the liability for contractors’ fees and bills so that they don’t ‘go with you’ should you cease managing the block.

Support should a property management dispute arise in the future

As mentioned above, your management agreement will really come into its own should the unthinkable happen and you face a dispute with your client. It is effectively the written evidence of the commercial relationship between the block and the managing agent, should any disagreement or disparity arise. Your terms of appointment can be used as evidence in Tribunal or Court of what was agreed if a dispute arises.

Brady Solicitors are experts in reviewing and drafting management agreements and terms of appointment for managing agents. If you would like someone to take a closer and commercial look at your current agreements (or help you to get some in place), please do get in touch.

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With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

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