Briefing for Debate on Property Management/Factoring Services

In March 2007, Gordon Jackson, Labour MSP for Glasgow Govan began a consultation with a view to introducing legislation which would regulate the factoring industry. Unfortunately Gordon was not returned to Parliament but the bill was taken up by Patricia Ferguson MSP.  A new consultation was issued and responses received. Meanwhile the OFT also decided that it would carry out a study into the issue.  The issues raised with the OFT were depressingly familiar but it concluded that a voluntary scheme (of accreditation) was the answer. The OFT did, however, recommend that if a voluntary scheme did not prove to be successful that legislation should be introduced within two years.

This was an incongruous conclusion given that the OFT’s market study (published in February 2009) found that almost one third of consumers thought their factor provided a ‘poor’ service, with over half of all consumers having some complaint with their service.  67% of those who lodged a formal complaint (35% of customers) did not believe their complaint had been adequately resolved.  However, the Scottish Government agreed with the OFT’s conclusion and established a working party to look at such a scheme.  The working party has been in existence since March 2009.

Patricia Ferguson and those campaigning for reform of the industry notably, Mike Dailly of Govan Law Centre and the Evening Times/Herald are firmly of the view that legislation is required.

Self-regulation has self-evidently failed, and property management must be one of the few industries free from any regulation or statutory form of consumer protection in Scotland.

When the bill proposal was introduced, 43 MSPs indicated their support.

A Q&A is provided below:

1. What services do Factors provide?

A Factor or Property Manager is usually engaged to manage or maintain those common parts of a property or estate on behalf of the owners. Traditionally factors were most likely to operate in traditional tenemental properties but in recent years many have extended their operations to include housing estates, modern tenemental properties and retirement complexes.
 
2. Do Factors operate across Scotland?

Yes they do.    
 
3. What kinds of problems do owners face?

A range of problems have been identified, from poor communication to money being charged for work that is not done.  Many factors charge owners before they will allow them to see the company’s financial records. Where communal insurance is provided Factors often take commission from the Insurer and some factors employ trades people but can not evidence that they have obtained reasonable quotes.  In the worst cases people have been taken to court because of relatively small debts, often incurred because of disputed accounts, which escalate into bills for thousands of pounds because the factor adds on administrative costs and interest in relation to reminder letters etc. Some factors also use the Tenements (Scotland) Act 2004 to lodge ‘Notices of Potential Liability’ for disputed sums, which are often quite small.  There is no checking mechanism for this process, and the Lands Register of Scotland staff have to register these Notices, which can have the affect of preventing the property being sold.  There is also no formal procedure to remove these Notices, and many advice agencies report this process can be abused by property factors, and used to intimidate homeowners, and expose them to arbitrary ‘administrative charges’ (e.g. £100) for the factor to provide a letter to the Land Register once the bill has been paid.
 
4. What redress do owners currently have?

At the moment, other than going to court to defend or raise a claim, there is very little that an aggrieved owner can do.  Going to court can be very difficult for home owners because many of these cases are under £3,000 in value (the upper small claims threshold) and there is no civil legal aid available for home owners.  The legal and factual complexity of disputes is often beyond the abilities of lay-representatives, and factors will often engage solicitors.  Often home owners will be brow beaten or exhausted by the process and simply give up. Some factors are members of the Scottish Property Managers Association, an industry controlled body that has a disciplinary system for its members but is extremely limited in what it can do. Its ultimate sanction is to expel members.

5. What will the proposed bill do?

The bill will require all residential property factors operating in Scotland to be registered with the Scottish Government or other such body as the Scottish Ministers may by order provide for.  A key criterion of registration would be that property factors were a fit and proper person by adhering to a set of minimum standards of practice.  If they failed to do so they could be de-registered, with a right of appeal to the sheriff. 

The Bill would also provide for an accessible and legally binding form of dispute resolution, which did not require legal representation and avoided the need to go to the court and be exposed to court outlays and legal expenses.   Such a system is already in place with the Private Rented Housing Committee (from the Housing (Scotland) Act 2006) for private sector tenants who have repair disputes with their landlord.  The bill would utilise that existing quasi-judicial infrastructure, which has the ability to be inquisitorial in nature, and does not require formal legal representation.   This PRHC was essentially the old Rent Assessment Committee, and so the 2006 Act utilised an existing non-court based dispute resolution infrastructure.  This is a tried and tested solution, which would open up access to justice to Scottish homeowners without any significant public costs.

6. Will all factors be covered by the bill?

Commercial property factors and housing associations who manage property occupied or let as a residential dwelling will all be covered. The factoring of commercial or business premises will be excluded as there is no significant evidence that business premises require statutory regulation. Further,  those who ‘self factor’ i.e. neighbours in a building who get together to organise repairs and maintenance themselves, would not be affected by the bill

7. Who decides which Factor is appointed?

Factors are appointed in a number of ways. Often an arrangement will already be in place when one moves into an established development/property. In previous times this was usually because  the owners got together to decide who the Factors would be but increasingly developers are putting a factor in place before they sell on properties.  There is usually a clause in the contract which gives owners the right to change their factor but this usually only kicks in two/three years after the last property is completed. In a development being built in phases this can cause problems as the owners can be stuck with a factor they do not want for a considerable period of time. As the building industry delays completions due to the recession this problem is being exacerbated In addition convening a meeting of one hundred or more individuals can be a difficult and daunting task.
 
8. How do you go about changing the Factor?

This will depend on the deed of conditions for the property and on any management agreement that may be in place. In theory a majority of owners coming together and agreeing that change is needed should, in most cases, be enough but a majority can be difficult to achieve if e.g. the developer maintains an interest in the properties or if there are a lot of buy to let properties involved.