As companies such as Peverel/Firstport come under more financial pressure as they lose an increasing number of development management contracts, they need to find new contracts to replace their lost developments.
Whilst even Firstport will gain a few wins from offering to help with RTM actions (some leaseholders still remain blissfully unaware of the true nature of Firstport) what they really need are management contracts from new build developers, who have a vested interest in the lowest possible service charges.
A low service charge makes it easier to sell the property for the developer, who really have no interest in what happens to purchasers in the future.
So what is now becoming more common place is for companies bidding for management contracts to lower the service charge quotes to an unsustainable level.
They deliberately leave out of the costings various essential items, or under estimate insurance costs, reserve fund requirements, management fees or find ways to double charge leaseholders by being vague on service charge headings or what is included in the management fee.
This practice is known as Lowballing.
Once the company has the contract they wait for a couple of years, until the developer has moved off site and probably sold their freehold interest to an off shore ground rent graizing company and ended their responsibilities to the purchasers and leave them to the mercies of the property management companies, so the service charge demands increase, then the insurance premiums increase, then the sudden need for expensive works increase.
Property management firms that tender for contracts on an honest and realistic basis are losing out to companies that bid low.
In the recent past Firstport won a large management contract near Wembley Stadium.
Property management companies reacted with disbelief when they discovered the terms of the contract. According to them, the bid was substantially below any reasonable cost that should be budgeted for. One described it as "predatory pricing"
At the time the contract was being negotiated the developer was being bought out.
So having a managing agent come in at such a low price, increased the value of the development company.
As ever, the only losers will be the innocent purchasers.
