Collection of monies

4.2 A key role is the collection and management of sums owing by occupiers relating to rent, service charge, insurance, and any other sums due under the lease. It is important that a property manager has an established process in place to arrange for the efficient collection of these monies. This means that a property manager will:

• have a thorough understanding of the relationship between landlord, occupier and other occupiers in the building;
• obtain, wherever possible, from the landlord, copies of all relevant documents, leases, licences and so on;
• understand from those documents the payment obligations;
• maintain a database of the occupiers and other occupiers to record the financial position with each of them;
• put payment processes in place so that the occupiers are clear exactly how much, when and to whom rent, service charges, insurance, rents and other amounts are due;
• make sure the payment process is clear so that no occupier or occupier can argue that the amount due or the time of payment is not known;
• have a mechanism in place to notify of any default in payment or a dispute over any payment and promptly report this to the landlord in the manner agreed about such default;
• have a process in place to pursue occupiers for defaults in payments;
• have arrangements in place to forward sums collected, less deductions, e.g. service charge, on to the landlord. The landlord will want these sums to be forwarded as quickly as possible; and
• report to the landlord on the reconciliation of the mount actually paid to the landlord and the amount collected.

Client accounts

4.3 A key advantage of a property manager who is professionally qualified is the ability to use client account arrangements, which the landlord can have confidence in as being subject to regulatory review. Where the property manager is a member of the Royal Institution of Chartered Surveyors (RICS) they will be required to comply with the RICS members’ accounts regulations ( Rule 8, RICS Rules of Conduct for Firms, version 4 (August 2010) is particularly relevant in this instance). RICS Regulation has also issued a help sheet, Clients’ Money: General Advice for Firms, that sets out guidance in its requirements for the handling of client money.

Defaulting occupiers

4.4 It is recommended that the property manager agrees with the landlord how defaulting occupiers should be dealt with; in particular, when the landlord wants to be alerted to a default. As a recommended minimum, property managers should inform the landlord as soon as the property manager feels it is sensible to instruct debt collection agencies, or to take legal proceedings to recover monies owed.

4.5 It is important for the property managers, if they do instruct a solicitor and/or a debt collection agency on behalf of the landlord, to ensure it is made clear to the debt collection agency/solicitor that the property manger is acting on behalf of the landlord and that all liabilities and costs arising from the instruction will be for the landlord’s account.

Service charge

4.6 Calculating the service charge apportionment and corresponding budget is a key duty of the property manager and needs to be handled with care. Occupiers will be anxious to ensure that the service charge budget is appropriate in its amount and allocation. Landlords will want to ensure their obligations under the occupational leases are fulfilled and the property is properly maintained. Service charges are the cause of significant friction between occupiers and landlords, which means the property manager will need to take particular care to communicate and be clear and transparent.

4.7 The property manager should keep monies collected as part of the service charge in a separate service charge account with transparent records for all income and expenditure. The 2^nd edition of RICS Code of Practice Service charges in commercial property (2011) goes into more detail on this.

4.8 Deposits

The property manager will need to review the occupational leases to understand what deposits are held and on what terms. It is recommended that the property manager establishes a separate, interest-bearing account to hold occupiers’ deposits.

Managing the building

4.9 The landlord will have responsibilities to ensure that the building is managed to its superior landlord (if any), to its occupiers, licencees and occupiers under the relevant lease or similar document, and responsibilities in law. It is the property manager’s responsibility to ensure that the landlord understands their responsibilities, and that these are appropriately delegated to the property manager.

4.10 The property manager should ensure the effective operation of the property. This means ensuring the property is efficiently managed; anticipating and monitoring potential problems; maintaining regular contact with occupiers; and seeking to comply with the service charge budget.

4.11 In addition, it is essential that the property manager has copies of all of the leases and related documents relating to the relationship of the superior landlord (if any), and with each and every occupier, licencee and other occupier. It is essential that the property manager reviews and understands these documents and identifies any missing documents. If the property manager identifies any gaps or missing documents these should be promptly notified to the landlord.

4.12 The property manager should consider maintaining an electronic database of all the key documents, dates etc.

4.13 Handover from the previous property manager (and handing over to the next property manager) is an important process. The RICS information paper Commercial propertyservice charge handover procedures (2011) is useful information.

4.14 It is important that the property manager has a good understanding of landlord’s legal responsibilities. Appendix 1 lists the key statutory responsibilities in England at the time of publication. It is the property manager’s responsibility to keep abreast of developments and advise the landlord of significant changes.

4.15 It is important that property managers not only ensure that they assist their landlord to fulfil all of their legal obligations, but also to demonstrate that the property manager has recorded that it is the case.

4.16 It is recommended that property managers have clear policies setting out how they are dealing with the review of documents related to the building, compliance of all laws and so on.

Management policies

4.17 It is recommended that policy documents are kept by the property manager detailing the following:

• calculation and management of the service charge account;
• collection of rent, service charge and other monies;
• repair and maintenance of the building;
• operation of the building;
• appointing and managing contractors;
• health and safety compliance;
• insurance;
• liaising with occupiers – generally, and also specifically in relation to consents such as consent to assign, consent to alter and so on; and
• management of procurement.

Insurance relating to the property

4.18 The landlord is normally required under its occupational leases to obtain insurance against damage to the property, including loss of rent, and public liability insurance, and the lease will usually allow the landlord to charge the occupiers for the insurance premium.

4.19 The advising on, brokering or arranging of insurance policies is subject to various financial services regulatory requirements. This is another complex area. For example, introducing the landlord to an insurer or handling claims may or may not be subject to regulation, depending on the circumstances. If a property manager has agreed to do more than simply collect insurance premiums for occupiers in relation to an existing policy then the property manager should check whether he/she is therefore subject to financial services regulations and if so, what level of compliance is required and how this will be achieved .

4.20 It is important for the property manager to understand the insurance arrangements and the property manager’s role in these insurance arrangements as:

• a failure for appropriate insurance in place could create a huge potential claim if there was a catastrophic loss. Making sure insurance is in place is a simple step to manage a huge risk;
• the property manager needs to understand what is to be charged to and collected from occupiers to pay for the insurance;
• the property manager needs to be able to identify when it may be appropriate to make an insurance claim.

4.21 It is sensible for the property manager to hold appropriate public liability insurance. If a person is injured whilst in the managed property then they will consider making a claim against all of the people involved – the landlord, the relevant occupier, the relevant service provider (e.g. cleaning contractor or security contractor) and the property manager. This risk is especially high for buildings open to the public with high footfalls such as shopping centres. Traditionally the landlord and property manager hold separate public liability insurance, recognising that their interests are different. It is recommended that property managers ensure that they factor in to their charges the costs of securing public liability insurance (especially where a high footfall public building is being managed). If a property manager wishes to hold no/minimal public liability insurance and rely on the landlords insurance, then it is important that this is expressly agreed in detail with the landlord to ensure the property manager is not exposed. This is a complex area but it is covered in the guidance note referred to in 4.24.

4.22 The property manager will also need to consider which insurances they are required to hold by law such as employers liability insurance and motor insurance if relevant), and those that are sensible to hold

4.23 The RICS Guidance Note Insurance for commercial property managers, 1^st edition, (2010) explains in detail the insurance covers required by commercial property owners.

Occupier liaison

4.24 Seeking to create a good relationship with occupiers is essential to good property management. Therefore the property manager should:

• ensure the occupiers know who the property manager is and how to contact them;
• seek regular contact with each occupiers;
• establish a regular occupiers forum; and
• properly respond to occupier queries.

Part of the property manager’s role is to manage applications by occupiers under the occupational leases, such as licences to assign, alter and underlet. The property manager should have a system in place to ensure these are dealt with properly and efficiently, reviewing them and making recommendations to the landlord. The property manager should bear in mind that although these applications may seem routine, to the occupiers they are often important and therefore need to be managed accordingly. The property manager needs also to ensure that it acts in accordance with statutory requirements under the Landlord & Tenants Acts (please refer to Appendix 1).

Energy management

4.25 Energy management is increasingly important with rising energy costs and growing responsibilities around CO₂ omissions and energy conservation. The property manager should be aware of any new regulations relating to environmental performace of buildings. The property manager also needs to ensure that energy procurement, energy conservation and regulatory competence is given a high profile.

Building management systems

4.26 Many buildings now have a building management system – in effect, an IT system to operate the building. It is the property manager’s responsibility to ensure the system is operating properly and is maintained regularly, not least because the system will be a key part of ensuring compliance with the regulatory obligations applying to the building.

Health and safety

4.27 A key role for the property manager is overseeing health and safety in the property, ensuring it is managed to comply with all legal obligations. Keeping the building safe and ensuring compliance with health and safety legislation will require the establishment of systems and procedures to ensure statutory inspections are in place and systems monitored. Appendix 1 sets out the key legal rights which property managers need to be mindful of.

Procurement of third party suppliers

4.28 Many of the services required for the good operation of a building e.g. security, cleaning and plant maintenance will be provided by third parties To source these services the property manager will normally enter into arrangements with third party suppliers as agent for the landlord. This means that the contracts (if properly created) are actually between the landlord and supplier. This has the effect that:

• the supplier is liable to the landlord for the performance of the services, which is important as the landlord is, in turn, responsible to its occupiers;
• if the property manager changes, the third party contracts will not be affected;
• ultimately the landlord is responsible for paying the suppliers so if, for example, the landlord becomes insolvent owing money to the suppliers, the property manager is not liable to the supplier.

4.29 It is recommended that the property manager has an appropriate procedure for selecting third party supplies to ensure that they are capable, reputable and good value for money. That procedure should identify when (e.g. annual contract value trigger) a more formal competitive tender should be used. Where the services procured are substantial, consideration should be given to using a procurement specialist.

4.30 The property manager should:

• ensure they have a comprehensive, signed contract in place with all third party service providers;
• ensure the contracts clearly state that the property manager is entering the contract as agent for the landlord;
• ensure the contracted scope of services is clear;
• ensure that the contracts with the service provider comply with any requirements the landlords has included in its property management contract (e.g. length of contract);
• ideally, ensure that all contracts with service providers can be terminated on one months notice on sale of the property (see RICS information paper Commercial propertyservice charge handover procedures (2011);
• consider including in the services contract a performance management regime or service levels;
• consider maintaining an electronic database of suppliers and contracts.

From: consultations.rics.org