Billions of dollars worth of housing are in the hands of private property management companies. Despite persistent problems, the industry has so far escaped regulation. Calls for its inclusion in revamped rules for real estate agents were rejected. We look at the wild west of residential property management.
Jericho Residential Property Management's half-page ad in the Yellow Pages claims signing-up with the company is easy – "one phone call and an email is all it takes". But don't bother dialling. Jericho went belly-up in June 2011, reportedly leaving landlords thousands of dollars out of pocket.
It was the second collapse of a property management company in a few months. Auckland firm Trump Assets Management was put into liquidation in August 2011 amidst allegations of missing rent and bond money. It's not yet known whether landlords affected by the collapse will get any of their cash back.
Company failure may be the worst case scenario but it's not the only risk you run if you're using a property manager. The industry has so far escaped regulation. Calls for its inclusion in revamped rules for real estate agents were rejected. The upshot is that anyone can set up shop as a "property manager".
It's estimated billions of dollars worth of housing – and millions of dollars in rent – are in the hands of private property management companies. Exact numbers aren't known but surveys suggest some 40 percent of landlords use these companies to look after their rental properties.
A good manager is meant to take the day-to-day hassle out of being a landlord. They also make renting easier for tenants by being on call to fix problems and making sure routine maintenance gets done. The result: happy tenants who stay longer and happy owners who get regular rental income.
But this virtuous cycle isn't always the reality. When things go wrong – as they did with Jericho and Trump – you're largely on your own. Property managers aren't required to keep payments in a separate trust account – like lawyers and real estate agents – and don't have to contribute to a fidelity fund or carry indemnity insurance.
And despite the fact they have the keys to your house, collect thousands in rent each week, and have access to personal financial information about tenants, there are no professional standards they have to meet. No surprises then that quality is hugely variable.
A 2009 Ministry of Justice review of the industry unearthed various complaints. Among them: poor communication, failure to inspect a property thoroughly – or at all, failure to act in accordance with the owner's instructions, failure to chase up rent arrears and failure to ensure repairs were done.
We recently asked members about their experiences of the industry and heard more bad than good. "Hopeless at managing the property", "communication was unreliable", "overpriced the rental", "high price for what they actually did", "seemed to do very little", "poor service", "not up to our standard" were among the grievances.
Just how prevalent problems are is hard to gauge because no one's keeping tabs. Property managers who are also real estate licensees are the exception. They come under the watch of the Real Estate Agents Authority (REAA) – and complaints about them are the fourth most common type of complaint the REAA receives.
The snag is the Authority has limited power to act. It can only make a finding of "unsatisfactory conduct" against a licensee for "real estate agency work", which doesn't include property management. It may take action if a licensee is guilty of "misconduct". But the bar for misconduct is high and most complaints don't meet it.
A case in point: an owner alleged the property manager had failed to prevent a tenant running a tattoo parlour in a flat and failed to follow-up rent owed by another tenant in the same building. The police eventually contacted the owner about the tattoo parlour after complaints from other residents. But the evidence didn't meet the threshold for misconduct and the case was dismissed.
In another instance, an owner alleged the property manager had allowed rent arrears to go undetected for 6 weeks, failed to carry out maintenance in a timely manner, and failed to take action to ensure a Tenancy Tribunal order against the tenants was enforced. The REAA's Complaints Assessment Committee concluded the manager's systems were poor, record keeping was sloppy, and the "timeliness and fullness of communication left a lot to be desired". Again, the misconduct threshold wasn't met and no action was taken.
Tenants have also been on the receiving end of problem managers. One complaint to the REAA involved a property manager's failure to lodge a bond with the Department of Building and Housing and alleged inappropriate conduct towards the tenant. The Tenancy Tribunal had found against the manager and made an award for exemplary damages. But the REAA's Complaints Assessment Committee decided there was insufficient evidence for any charge of misconduct.
In another dispute, a resident alleged the property manager turned up at an apartment building without notice, refused to identify herself and was verbally abusive. In a heated exchange witnessed by neighbours, the property manager allegedly swore at the resident "you can f….ing well pay the bill". The Complaints Assessment Committee said the conduct was "inappropriate and uncalled for" but didn't constitute misconduct.
Regulation of property managers is the norm elsewhere. Across the Tasman, property managers have to meet the same rules as real estate agents – including being licensed and meeting minimum qualification requirements. But it's "no questions asked" here.
In 2008, parliament's Justice and Electoral Select Committee recommended "immediate action should be taken to create an appropriate regulatory regime for property management activities".
A majority of submissions to a subsequent Ministry of Justice review also supported some form of regulation. The New Zealand Property Investors Federation submitted there were "widespread problems occurring with the provision of property management services". It argued for mandatory qualifications for property managers to raise standards.
But the government decided against any intervention. Announcing its decision in 2009, Associate Minister of Justice Nathan Guy said additional regulation wasn't justified as there were already sufficient safeguards to protect property owners.
Linda Fox, a lawyer and spokesperson for the Auckland District Law Society Public Issues Committee, disagrees. She's seen a rise in owners seeking legal advice after being stung by miscreant managers: "owners often feel powerless to do anything, either through lack of money to pursue a claim or lack of legal avenues to recover their losses."
Linda says their only option is to rely on general contract law and that can be "a blunt weapon – it's often throwing good money after bad". If the company has already gone bust, a heightened risk in the current economic climate, chances of getting any money back are extremely slim, she says.
Martin Evans, president of the Independent Property Managers Association (IPMA), holds out hopes for industry self-regulation. The IPMA has developed codes of practice for members. But 7 years after its formation, only a handful of property managers have joined.
Jericho Property Management was a member. But Jericho resigned its membership before its financial problems become public. Martin believes the company was breaching IPMA rules. However, its resignation meant there was nothing the association could do.
Martin concedes the IPMA hasn't had much traction. He says the association is in discussion with others about setting up a new body that would have wider industry coverage. But talks have only just begun and it's not yet clear what role any new organisation might play.
Property managers typically charge on a commission basis. According to the Independent Property Managers Association, the average commission is 8.5 percent of gross rent. On top of this, there are usually charges for advertising the property, credit checks on prospective tenants and sundry other items.
Quinovic Property Management, one of the prominent names in the business, charges 8.5 percent commission on rent and other money collected; a $10 monthly administration fee; $30 property inspection fee; $5 handling fee for payment of rates and insurance; 10 percent commission on any other account paid; $500 if the property is put on the market; and $60 an hour for attending Tenancy Tribunal hearings or mediations.
Some property managers will also charge tenants a letting fee, usually worth one week's rent plus GST, to secure the property.
Property managers routinely require tenants to consent to a credit check. This gives the property manager the right to trawl through a tenant's credit history and other personal information.
But that's not the case in Australia. Landlords there aren't considered to be credit providers and aren't permitted to have access to consumer credit information. It's hard to see why the same rule doesn't apply on this side of the Tasman.
Landlords already have free access to past Tenancy Tribunal decisions to identify potential problem tenants. They also take rent in advance and have the added security of a bond (up to 4 weeks rent) held by the Department of Building and Housing. A credit check seems an unnecessary extra step.
Advice for owners
If you're thinking about using a property manager, tread carefully.
- Before you sign-up, quiz the manager on their experience and qualifications.
- Check the contract carefully. What are the fees? How do you cancel? Some companies stipulate a 12-month minimum term. If you're not comfortable with this, negotiate or don't sign.
- Keep track of payments. Make sure the company is passing on rent payments promptly. If there's a delay, contact the company immediately to find out why.
- Request detailed inspection reports. You may want to inspect the property yourself periodically. Property managers' inspections may be once-over-lightly. They may be in and out of the house in less than 5 minutes.
- Stipulate if you have a preferred tradesperson. Property managers will usually have their own tradespeople and they might not be the cheapest.
Advice for tenants
- If you're renting a house through a property management company, ask to pay the bond direct to the Department of Building and Housing. Be aware that the company doesn't have to agree to this request.
- Inspect the property thoroughly before or as soon as you move in. The company should provide you with a written report on the property's condition. Check it carefully, note any omissions and let the company know.
- Try to be present at property inspections. Some companies make this difficult by only doing inspections on weekdays. Ask for the inspection to be done at the weekend or at a time when you're home.
- Think about asking for a periodic tenancy rather than a fixed term agreement. With a periodic tenancy, you only need to give 21 days' written notice to move out if you strike a problem manager. Again, the company doesn't have to agree to your request.
- Owners and tenants need to have confidence property managers are fit to do the job. The current unregulated market isn't providing any reassurance this is the case.
- We can’t see why property managers have escaped regulation when related trades haven’t. At a minimum, we'd like to see mandatory registration requirements, backed up by professional standards and an effective disputes system.
- If you use a property management company, be on your guard. There are few safeguards to fall back on if things go wrong.
Report by Jessica Wilson.