A Change On The Not So Distant Horizon?

Scotland will soon undergo a major re-development in relation to the law surrounding property managers or as they are known in Scotland Factors. An area which until now was largely unregulated this is all due to change when the new Property Factors (Scotland) Act comes into force on the 1st October 2012. The main aims of the Act are to create (1) a basic code of conduct for managers to adhere to; (2) a mandatory registration process for all managers; and (3) an accessible dispute resolution forum.

A key point to note is that the Act only applies to residential properties.

Code of Conduct

It is intended that the new code of conduct will result in uniformity of service from property managers across the board. This should ensure that managers provide a basic level of service and that homeowners are not left in the dark as to what to expect from them. The Scottish Government recently opened a public consultation on the draft code and welcomes input from homeowners, factors and any other interested parties. The consultation is due to run until December 2011. Until the final version of the code is published, there is no way of saying how this will improve the industry as it currently stands.

Registration

All property managers who wish to register must do so by application to the Scottish Ministers who will, in turn, publish a register of those organisations. Consequences of not being registered or for being removed from the register will result in property managers not being able to charge for work instructed by them. In addition, homeowners will have the right to arrange for new property managers to take the place of unregistered ones.

Dispute resolution

It is hoped that a new dispute resolution process will bring an end to unreasonable charges for repairs and maintenance and provide a cost-effective forum for resolving disputes between homeowners and managers. This can only benefit homeowners or, indeed, lenders who take possession of properties where a factor is operating. The Act will establish a Homeowner Housing Panel (HHP) and a Homeowner Housing Committee (HHC).

At the initial stage, the HHP will determine complaints made by homeowners and consider if they are to be referred to the HHC. Complaints to the panel will only be accepted if they have merit and if there has been a complaint already made to the factors which was not capable of resolution. The HHC then decides, after representation by both sides, whether it will issue a Property Factor Enforcement Order or reject the complaint. Failure on the part of the property manager to adhere to an enforcement order could result in them being removed from the register.

What should lenders expect?

In terms of residential properties which have been repossessed, it should become easier for lenders to identify those property managers who are responsible for their properties. The Scottish Ministers will maintain a register which can be accessed to confirm the property manager’s details. This should help to ensure that all potential costs attached to a property can be identified earlier in the repossession process which may be beneficial when negotiating and processing sales. Another potential benefit in having a requirement on property managers being registered is in the marketability of a property.

If you are able to confirm that the property managers are registered, and have a good track record with regards to repairs on the property, this could result in the sale being that much more attractive to any potential purchasers for the property.

The clock is ticking…

Come 1st October 2012 it is hoped that the industry will be much more regulated and accountable. Parties will be able to identify who is responsible for which property and, in cases where a factor is issuing unreasonable fees for services or refusing to carry out required works on a property, there will be a forum to have these issues reviewed. This will avoid lengthy negotiations and if applicable expensive court actions.

In terms of how this will impact on the industry it will be a case of wait and see as it won’t be until after the Act comes into force that we will be able to really gauge how much of a shake up this Act will really cause.

Angela Graham & Laura Browne, Solicitors, IM Insurance Lending & Recoveries Team, Scotland