WHAT REALLY HAPPENS WHEN A MANAGING AGENT CUTS THEIR FEE
27 NOV WHAT REALLY HAPPENS WHEN A MANAGING AGENT CUTS THEIR FEE
There are very few bodies corporate that function effectively without a managing agent.
The responsibilities placed on trustees can be onerous, requiring dedication as well as knowledge of sectional title legislation. To make matters worse, trustees are not paid for their time and often not appreciated.
The impact of low fees on service delivery
The appointment of a managing agent is contractual of nature. Their function is to assist the trustees with their duties and responsibilities.
More often than not, given that the candidate property management companies have a fair amount of experience, trustees often select the candidate with the lowest monthly fees. This continuous application of fee-based appointments contributes to the problem the industry is currently facing.
The reality is that managing agents have brought this upon themselves. They undercut their fees to attract and obtain new business, having the effect of:
- Needing to take on more schemes to make their business financially viable
- Overloading each property manager with too many schemes to manage effectively
- Not paying fair salaries considering the increasing workload
Over-promising and under-delivering
Agencies also tend to over-promise on their services to attract business.
As the portfolio managers are over-loaded with too many schemes to manage, attention to detail tends to get lost and small issues become big problems because these are not dealt with timeously or effectively.
This leads to poor performance by the managing agent, followed by a growing distrust between trustees and the agency, ultimately leading to early dismissal or termination.
Few agencies are able to offer good salaries to property managers and supporting staff, leading to a high turnover of staff which exacerbates the problem of poor performance. The long-term effect of this is that many agencies earn a reputation for poor service and ineffective management.
What can trustees expect of their managing agents?
Trustees are responsible for the overall performance of a body corporate, from financial management to attending to maintenance issues. Some trustees mistakenly have the viewpoint that their managing agent is entirely responsible for the running of the scheme based on the monthly fee they get paid.
Interestingly, the Act does not hold managing agents responsible for the following duties (although it is often handed over to the managing agent by being included in their service level agreement):
- Preparing a budget of income and expenditure
- Arranging the annual audit for the scheme
- Preparing the levy schedule based on the approved budget
- Arranging and preparing a 10-year maintenance plan
- Arranging for a valuation for insurance replacement values every three years
- Arranging for the renewal of the insurance policy of the scheme
- Arranging for the notice of the annual general meeting to members of the scheme
- Attending meetings of the body corporate
- Preparing the minutes of trustee or general meetings
- Collecting arrear levies
The nature of the contractual agreement is that both parties agree to the services that the managing agent will perform for the body corporate. Even if the agency agrees to assist the trustees with some of their responsibilities, the trustees can never abdicate any of their responsibilities.
It is fair to expect that the role of a managing agent to be administrative of nature.
Paying managing agents for the services they provide
Naturally, when the managing agent is paid a higher fee, the trustees will have a higher expectation of the level of service they will receive. More affluent schemes actually prefer to pay higher fees but then expect a more professional, attentive level of service.
The same can apply to less affluent schemes that choose to either not pay higher fees or are unable to do so because of financial constraints. Often, they settle for choosing a lower monthly fee which often results in lower service levels.
Although trustees can never abdicate their duties and responsibilities, they can ensure that the agency provides a service to them that makes their lives less stressful.
Service level agreements are essential in this case and by having such an agreement in place, trustees can continuously monitor the performance of their managing agent.
How do managing agents deal with service delivery?
Experienced managing agents know that many trustee responsibilities can be addressed by having effective operational systems in place. Managing agents can improve their levels of service by using management software and other technological services that will assist them in performing their duties.
If the industry is going to evolve and grown, ongoing training of staff and trustees is essential. A commitment to ongoing training will ensure that decision-makers are kept informed and educated in what their duties are and how to perform it best.
For managing agents to be paid better fees, a few things need to fall in place:
- Trustees need to understand that if they want a professional service, they need to pay fees that are fair and relevant.
- For managing agents to demand higher fees, they need to commit to better service and insist on getting paid fair fees without undercutting themselves.
- Managing agents need to commit to ongoing training and keep updated regarding the practical implications of the legislation that governs the sectional title industry.
Mutual understanding and respect from both sides is the key moving away from the culture of undercutting that has become so pervasive in this industry.
At the end of the day, trustees deserve good service and managing agents deserve to make a fair living. This is the only way the industry will find its way back to higher service levels and mutual trust.
Author: Lize Sadie - Ideas Inc