A new lease of life: - CentreForum

A New Lease of LifeFreeholders are likely to have limited incentive to manage a propertythemselves (other than the management fee) and usually turn to amanaging agent to fulfil these duties. The agent signs a contractwith the freeholder to arrange management services and to collectservice charges as per the lease agreement. When a freeholderappoints a managing agent, the agent has a legal commitment tothe freeholder but no direct legal obligation to the leaseholdersunless the client is an RTM company or RMC and has appointedthe agent. The managing agent’s priority, therefore, is to meet thedemands of its customer, the freeholder. This structural relationshipis illustrated in Figure 2.Figure 2: Traditional arrangement of freeholdercontrolledmanagementManagingAgentAppointmentof managerFreeholderManagementprovisionLeaseholdagreementLeaseholderThe interests of the leaseholder are excluded from the relationshipthat determines the management of their property. This problem isexacerbated by the fact that the freeholder does not ultimately paythe service charges, but passes them on to the leaseholders. Thefreeholder receives ground rent regardless of managing quality anddoes not benefit if management is of a high standard.In contrast, when leaseholders are responsible for the appointmentof managing agents – as is the case with RTM and commonhold –the agents work directly for the leaseholders who can easily changetheir manager without going to a tribunal or pressuring a freeholder.This relationship is presented in Figure 3. The leaseholders, asclients, have greater influence over the manager, who in turn is26