What Are Management Companies?

Matthew Griffiths

February 18th, 2022
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When buying or renting a house, you may put up a fence or hedge around your garden, and as long as you’ve done it right, that’s your garden boundary defined. Everyone else keeps out, and you stay in.

All you need to do is look after the fence or trim the hedge and maintain what lies within your boundary. Whether that’s mowing the lawns, weeding the flower beds or carrying out maintenance works on your house such as repainting, fixing gutters or mending a leaky roof, it’s your responsibility.

Simples.

But what if it’s not that easy to define your land? What if you live in a flat? Or there are shared communal spaces that the local council hasn’t adopted? Perhaps it’s a private estate with a private road.

Who would be responsible for maintaining the outside of a block of flats, getting them repainted or fixing its leaky roof? Moreover, who’s paying for it?

The solution is a management company to look after the communal aspects of a block of flats or a wider estate.

What Is a Management Company?

There are generally two main types of management company. A Residential Management Company and an Estate Management Company.

For commercial enterprises, there may also be similar management companies in place.

It is often seen as too difficult to precisely split a larger shared building or an estate into individual portions outside of a resident’s domain.

There are usually common areas used by all or a roof that all the occupants benefit from. What about access roads to houses deep into a development, or the rolling lawns enjoyed by one half of the development but not the other, yet they add to the perceived quality of the development and, therefore, improve the estate’s appeal, helping underpin house prices.

Imagine if the main lawns or driveway was split into individual ownerships. A strip here or section there. What happens if one or two of the residents don’t maintain their sections? You might get strips of long grass next to neatly mown sections or potholes in one part of the road when the rest is smooth. Or part of a block of flats gets painted, and the other parts don’t, resulting in a patchwork finish.

A management company looks after everyone’s interests equally, ensuring a uniform finish across a development and removing this issue of allocating individual responsibilities. It’s all done under a single management company umbrella.

A management company is a business and will need to be registered at Companies House and must have Directors and a Company Secretary appointed.

Types of Management Companies

What is a Residential Management Company?

A residential management company will deal with the example above of a block of flats. Its remit will be to maintain the apartments’ external envelope and the internal communal elements.

Outside, there may be an entrance drive off the main road to a car park, each of which may require maintenance such as new white lining, replacing damaged tarmac, unblocking drains full of leaves.

Around the drive and parking, there is likely to be some form of landscaping, whether large lawns, perimeter hedgerows or smaller flower beds. The residential management company will maintain these as required; lawns mowed, hedges trimmed, flower beds weeded.

The envelope of the flats, so the external walls and roof will also fall within the management company’s remit. From simple tasks of clearing or fixing gutters to more complex and expensive tasks like repairing or replacing a leaking roof.

Inside, some areas are used by all or a select number of the residents. Communal front doors, hallways, staircases, lifts, fire alarm systems, gyms, common rooms etc. These will all need to be maintained, serviced, cleaned or parts of the whole replaced at some point in the future.

The Management Company will also arrange for buildings insurance.

What is an Estate Management Company?

An estate management company is similar to a residential management company. However, there are generally very few to no residential buildings to worry about. The Estate Management is usually a larger development with access roads, parking and landscaping to maintain.

In addition and a more regular occurrence in newer developments, the Estate Management Company will deal with communal drainage.

The idea, implemented at the planning stage, is to deal with stormwater on-site, in other words, rainfall-runoff. This water is collected from hardstanding standing areas like roads and car parks and is fed into attenuation tanks and balancing ponds, allowing a controlled amount of water to discharge into mains stormwater sewers or local brooks, streams and rivers.

Think of water flowing into a bath faster than it can drain away. The flow out of the tub is limited by the size of the plughole, resulting in the water level rising and the bath filling. When the water flow in reduces to less than the flow out, the water depth will drop.

Foul water, which comes from your home and needs to be treated, may require a pumping station or on-site filtration services like reed beds. These maintenance costs and obligations fall within the estate management scope of works.

Additionally, more upmarket developments may have communal facilities like meeting rooms, swimming pools, gyms, tennis courts etc.

How do Management Companies Work?

In general, once a new development or block of flats is built, the developer will set up a management company and then appoint a managing agent on behalf of the residents.

The residents become shareholders or directors of the management and hold the managing agent to account to ensure that they are carrying out their appointed tasks and to the required standard. They will ensure that the company’s invoices are paid in accordance with their appointment and that there are enough funds within the management company’s accounts to keep it liquid.

However, the residents may not wish to or may not have the skillsets to undertake these roles. In which case, at a cost, external Directors can be appointed to the management company’s board along with a Company Secretary to run the management company on the resident’s behalf.

What are Service Charges?

Residents pay a service charge into a management company account to cover the cost of maintenance works in the common areas, such as redecoration, replacement flooring, door entry systems services etc.

A sinking fund can be set up for longer-term expenses, such as resurfacing the car park or replacing a foul water pump station.

Services charges must be reasonable and fair and can be questioned or appealed at a tribunal if deemed otherwise.

Benefits of Management Companies

  • Companies house returns and obligations dealt with
  • A company secretary ensures compliance is met for the business
  • Consistent levels of services and finishes
  • Removes any issues around particular residents not pulling their weight or keeping communal areas to sufficient standard
  • Estate or Blocks are maintained and kept in good condition, reducing repair or replacement costs.

Negatives of Management Companies

  • Fixed monthly or annual charges to the residents for the services
  • Conveyancing fees can be higher for leasehold purchases
  • Less individual choice on what should happen as this will need to be agreed or voted upon by the shareholders.

Summary

There are two main types of management companies for residential developments:

  • Residential Management Company
  • Estate Management Company

Management companies are set up to maintain a defined area and scope of works.

Appoint a managing agent to ensure that, with a residential management company, a block of flats is secure, safe and well maintained. In contrast, an estate management company will look after grounds maintenance and common provisions such as drainage.

Photo by Jamie Street on Unsplash

About Matthew Griffiths

Matthew takes great pleasure in combining his two professions. One has seen him give two decades of service to the construction industry, from roles as an Estimator through to sitting on Boards. The second is his passion for the written word. He now has the best of both worlds, building homes and constructing written content.

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