Property Management Agreements (“PMAs”) have been around for years and typically follow the same format. However, the growth of the Build to Rent (“BTR”) sector has caused a re-think of the “usual” terms to ensure it reflects the realities of a BTR offering. This blog explores the impact of BTR on PMAs and current market trends.
In the BTR sector landlords are not just offering tenants a place to sleep; they are offering tenants a place to live with a sense of community through on-site features such as gyms, concierge services, roof terraces and co-working office space. Tenants want more for their money and are attracted by the bespoke streamlined “tenant experience” offered by BTR operators along with the new technology such as home automation, smart heating/lighting and superfast broadband, all of which is rolled into the rent. Customer service and resident satisfaction is key. BTR operators know that happy tenants mean longer tenancies and fewer voids. Therefore, high quality property management is an essential element of a successful BTR scheme, which makes the right property manager and a tailored PMA key to the success of a development.
Services and KPIs
Property managers can have a variety of roles. Some BTR operators may require managers from mobilisation onwards (i.e. the period from practical completion when operators are preparing for the property to be let out). Other larger operators may perform the bulk of operations in-house (i.e. signing up new tenants, collecting rent etc). These types of operator will only require managers to supplement their own operations – for example, providing wider estate management services.
The core services for a BTR PMA typically include:
- mobilisation services;
- property management services relating to maintenance and repair and the engagement and management of third party contractors;
- tenant and lettings management;
- marketing and advertising services;
- financial management and accounting services;
- risk management services;
- asset protection services; and
- concierge services.
In relation to tenant and lettings management, under a BTR PMA the property manager will, as well as liaising with tenants, usually carry out activities including managing tenants’ furniture and F&F requirements, evaluating a tenant’s creditworthiness, managing tenant turnover, preparing check-in/out inventories; managing deposits, arranging execution of tenancy agreements and providing tenant information packs.
Concierge services usually cover activities such as taking delivery of parcels and dry cleaning, providing move-in assistance, providing apartment support, arranging house-keeping services, providing help and assistance in relation to the local area, organising community events at the property and managing and maintaining the social spaces.
A PMA will have several key performance indicators (KPIs). For a BTR PMA, these often include KPIs covering:
- rent collection and rent payment methodology;
- tenant satisfaction (usually measured through resident surveys);
- response times for tenant queries, complaints and emergencies;
- gas and electrical safety;
- health & safety and fire risk assessment;
- property inspection;
- data input (including tenancy record updates);
- cash management;
- supplier invoice and processing; and
- reporting (including financial reporting).
The fee structure for BTR PMAs differ to the usual residential PMAs in that the fee payable is usually threefold:
- a fixed percentage of rental income;
- a fixed percentage of net operating income; and
- an additional fee when certain KPIs are met.
Additional Statutory Obligations
Unlike with build to sale properties, there are a number of additional statutory obligations on the BTR operator as landlord that the property manager will be required to comply with. These include:
- providing tenants with tenant information packs containing information and documents required under the Housing Act 1988 and Assured Shorthold Tenancy (AST) Notices and Prescribed Requirements (England) Regulations 2015;
- ensuring tenants have the right to rent through their immigration status;
- complying with the tenancy deposit scheme; and
- (where applicable) procuring and complying with any licensing requirements under the Housing Act 2004 (in relation to houses in multiple occupation).
NB Government’s consultation on the abolition of ‘no fault’ track repossession of ASTs is considered here. Any changes to the law in this area would need to be accommodated in the PMA.
BTR tenants do not contribute separately to a service charge, so rather than incurring expenditure relating to the property in line with an agreed service charge budget, property managers are required to incur expenditure and provide the services in accordance with an agreed business plan. The business plan will cover the budget programme, expenditure strategy, letting strategy, estimated rental income and general business plan for the property. The property manager will often be involved in producing and updating the plan with the BTR operator during the term of the PMA.
Going forward, what’s on the horizon for BTR PMAs?
- Comments and feedback on internet and social media platforms are very important. Will managers be judged by this and will this be reflected in KPIs?
- In the last few years, the Government has scrapped administration charges payable by tenants and is now considering the ability to “passport” deposits between tenancies. Given the increased focus on renting by the Government and ensuring that tenants have better terms, there’s potential for services to be reviewed to fall in line with updated legislation and market practices.
- To maintain tenant satisfaction, operators need to continue to adapt their offering to suit changing tenant needs. To do this they need to understand how tenants use the services and the building. This is where the new data collection and generation technology will come in. We may start to see, as part of the services, property managers engaging these IT providers for the operators, for products such as smart locks, mobile phone tracking software and tenant management software and then analysing and reporting on data around tenants’ choices, preferences and interests. This also brings with it additional data protection issues that will need to be addressed in the PMA.
Whatever is on the horizon, whether as a result of new legislation, changes in societal attitudes to renting or changes in developers’ and operators’ offerings, the BTR sector is one that will continue to evolve. As a property manager’s role changes with these developments, it is important that the PMA keeps up too.