Every penny spent, via the service charge, on maintaining your development matters. It goes towards creating a place you're proud to call home.
Within the service charge there is a portion towards professional costs which include Management fees. The management fee is the fee paid to the managing agent for performing the duties as set within the lease or transfer.
But to understand what a management fee is, first we need to understand what a service charge is. Sometimes these terms are used interchangeably, which can get quite confusing.
A service charge is paid by all property owners in a development (the term 'estate charge' maybe used for developments with freehold properties.) All monies collected are held in a designated client trust bank account and contributes towards running costs such as cleaning, gardening, maintenance of systems or equipment, insurance, utilities, health and safety and much more – in line with the lease or transfer requirements.
Exactly what the service charge pays for depends on the amenities at your development. The communal areas maintained using service charge money are called 'managed areas'. The service charge does not cover maintenance and repairs within individual properties or adopted land.
Important: There's a common misconception that the service charge is paid 'to the managing agent' and they carry out all the services. That's incorrect.
The service charge you pay goes into your development's own, independent, interest-earning client bank account. The managing agent administers that account on your development’s behalf. This involves collecting the service charges from homeowners and using those funds to pay the contractors, suppliers and service providers who submit invoices for their services.
The managing agent doesn't always carry out the physical maintenance directly, it usually arranges for it to be done.
Imagine you tried to do this yourself. You would create a brief of what you wanted done (a 'specification'), contact various contractors, get quotes, appoint the best firm, monitor their performance, act on any issues identified, and pay their invoices every month.
If you looked around at all the assets across your development, you'd do this for every item, such as cleaning, gardening, grounds maintenance, fire systems maintenance, mechanical and engineering equipment (lifts, gates, pumps, ventilation), life safety systems, play equipment, and so on.
That's what the managing agent does on your behalf. And more.
The service charge is based on a budget estimate prepared at the start of each year, called the 'service charge budget'. It's based on supplier quotes, historical expenditure and any planned work for the forthcoming financial year. It also needs to cover annual cost increases - in line with national inflation which is outside of our control - such as increased insurance, rising material costs, higher costs from contractors and of course the often unpredictable costs of utilities, and new legislation requiring additional work.
In the service charge budget has various lines of ‘services’ that make up the total service charge. Within the budget, there will be a line item (and an associated cost) for a 'management fee'.
The management fee pays for the services provided by the managing agent, like Encore. We have a wide variety of responsibilities, which differ depending on your estate and its managed areas. Generally, though, the management fee pays for us to deliver various functions. It's a long list:
Financial management
If Encore is your appointed managing agent, these services will be delivered by an appointed Estate or Property Manager, who will have day-to-day management responsibility for your development.
Sometimes people equate the management fee with the salary (or proportional part) of their manager. While the management fee has to cover this cost, it's not the only cost it has to cover.
The manager doesn't work in isolation. Supporting them will be likely be an Assistant Property Manager and a team of people in specialist functions such as accounting, legal and health and safety. All teams are supervised by Team Leaders and Regional Directors to monitor performance and provide expert resource when needed.
The manager also needs all the 'tools' to do the job. When you appoint a manager, you appoint a managing agent firm. So, the management fee must also cover the managing agent's costs such as IT resources, systems, office overheads, professional insurances, memberships, and ensuring the people who manage your development have the resources to manage effectively and in accordance with regulations.
While these are the 'hard' costs, you're also paying for all the expertise, proven experience, well-honed procedures and professionalism of a proper managing agent. And that managing agent needs to attract and retain qualified, motivated and caring team members in what can be a challenging sector in which to work.
Yes, a management fee is different from a service charge.
The service charge is the total amount paid by property owners for management and maintenance of their development and communal areas.
The management fee is a small part of that service charge, and it pays for the services of a managing agent, for them to arrange all the things that need to happen.
The management fee does not cover costs associated with the delivery of actual maintenance. This is covered by the remainder of the service charge.
The management fee pays for a managing agent who is being entrusted to take care of your development and, as a result, the place you call home. The right managing agent will ensure your development is well maintained, compliant, financially stable and a pleasant place to live.
How well that's achieved comes down to the managing agent's people, systems, professionalism and approach to estate management. That's why, at Encore, we invest in all of these things, so the estates we work with get the very best expertise and value for their management fee.
It's also worth noting that the management fee is typically fixed at the beginning of each year. It does not 'clock up' as the year progresses, neither is it determined by how much the overall service charge is. Instead, it is set during the budgeting process and it has to cover the time and the overheads of the managing agent to deliver its services for the following year.
Typically, a management fee will increase each year based on a measure like RPI or Earn01. This is simply because each year the costs we cover increase nationally.
Software prices rise, new regulations require expenditure, insurances increase, as do office overheads, to name a few.
Crucially, to attract and retain good people, salaries can't be fixed every year either. What a managing agent pays its employees is vital in making it an attractive place for talented people to work, where they can provide clients and residents with an excellent service.
Review your lease: The first step to understanding the management fee for your estate should be your lease agreement or transfer documents. Make sure you review this in detail to understand how your development is managed and who is responsible for what.
Use our app: For developments where Encore is the managing agent, there will be access to our app, Places, and the option to receive updates via email. Make sure you choose this option, as it's the quickest way of getting information to you, including financial information such as a breakdown of how the service charge is being spent (including the proportion allocated to management fees).
Attend meetings: If you're interested in playing a more active role in the management of your estate, you can attend resident meetings, including AGMs, to ask questions and to understand more about plans for your estate.
There's a lot involved in looking after a development. And there's huge responsibility in ensuring the estate is well managed, financially stable and compliant with legal and regulatory requirements.
The management fee is a small part of the service charge paid by each property owner. But it's a critical part. When paid to the right managing agent it will help to secure a positive future for the development, and make it safe, accessible and pleasant for everyone. That's why we believe it's essential every property owner understands just what a management fee is, and what services it funds.
We hope this guide has helped establish just that. If you're a property owner at an estate managed by Encore, and you would like to know more about our role in your community, you can read more on our app or speak to your Manager.
