Block Management Problems: How hiring the wrong agent led to higher insurance costs and noisy neighbours

Through our work with leaseholders and Resident Management Committees (RMC) boards we have come across a high number of flat owners who are dissatisfied with their managing agents.

One recent example we have seen is of a 50 flat building in London whose leaseholders had 18 months ago, collectively purchased the building’s freehold. Following the hiring of their first managing agent, they started to experience some new and unexpected problems with their building.

Over the first year they found that their insurance premiums increased and their living standards dropped. Specifically, there were complaints about the number of parties and the level of noise throughout the block, and their insurance premiums rose by 15% with a lesser coverage.

It is thought that an increase in short-letting and ‘Air’bnb’ style rental arrangements had led to these issues although no-one was immediately sure why these changes had occurred.

Increasing insurance costs and reducing rents

The effects to the building were damaging to both residents and landlords alike. Some of the residents decided that it was a good time to cash in on the property and sell-up. Those that remained suffered from increased noise and disruption – complaints to the Freeholder board went up.

In addition, rents went down. The cleanliness and standards of the communal area reduced demand from long-term tenants – further creating a vicious cycle where short-letting seemed more profitable, even though it was degrading the building.

In this building, as with many others across the country the noise pollution became an increasing problem. The charts below show how these issues have become more prevalent in the 10 years in the UK, coinciding with a trend to use flats as short-term lets.

Furthermore, due to an increased number of insurance claims throughout the year the premiums went up. This increased the costs on all flat owners of the building – further reducing the living standards for the resident-owners, and reducing the rental yields for landlords.

Why did this happen

Although the previous agent was poor, they were getting one thing right. That was to be very tight on the tenants they allowed in the building – it annoyed some flat owners who were quite vocal about their short-term problems, however in the long-term this helped to maintain the building and the value of each flat.

The new agents had little experience with this type of building in this location and subsequently had not expected such a dramatic change in tenant quality when the rules were relaxed.

The relaxing of the tenant vetting led to a change in the use of the building – from long-term residential to increased short-term, holiday lets.

Wear and tear of the communal areas increased with the increase in footfall. Poor use of the flats lead to flat-to-flat problems, e.g., leaks, noise and graffiti.

Furthermore, these repairs where being met by the buildings generous insurance policy, which was another legacy arrangement which the new managing agents did not recognise as a problem.  The number of claims in the first year shot up – increasing the premiums for the next year.

In general, the lack of experience of the new agents with this type of building led to the large, unintended consequences from minor policy changes to be unforeseen.

How they found the best managing agents for the next building, next time

They decided that local experience was the most important factor when picking a new managing agent and decided to use this as their key criteria when screening new agents to speak to. It was important that whichever agent worked with them next had experience with their specific problems and areas.

By cataloguing the buildings that each agent managed, they were able to find those which were most likely to solve their own problems and thereby hit the ground running.

By using the JuxtaBlock Property Management search system, they were able to reduce the time taken for this research and very quickly put together a short-list of the best agents to approach.