As a management company overseeing new build developments, your role is crucial in ensuring the smooth operation and maintenance of communal areas. A well-drafted management agreement can make all the difference in maintaining good relationships with developers and property owners. Your management agreement will set out the arrangements for the future management and maintenance of the development. In this blog, we take a look at the importance of a well drafted management agreement between a residential developer and their appointed management company, and review where things can go wrong without a robust agreement in place.

The management agreement

Before entering into a contractual relationship, it is crucial to have a clear understanding of what you need to achieve, how you will achieve it and how things will work in practice. The key purpose of having a management agreement is that it clearly sets out the obligations of each party in respect of the open space on a development, giving both parties clarity and certainty as early as possible.

If there is no management agreement entered into prior to commencement of the sale of plots on a new build development, there a number of issues which could arise such as:

Lack of binding relationship between developer and management company

The risk here is that if the relationship breaks down for any reason, there would be no obligation to transfer ownership of the open space, and no terms to govern responsibilities and expectations.

No legal right to collect service charges from the residents or maintain open spaces

If you have taken handover of the public open space on a development before a management agreement has been entered into, you may have no legal ability to collect service charges to cover the cost of maintenance or even perform that maintenance. This could lead to disputes with residents and the incurring of costs that aren’t recoverable.

How to avoid common mishaps in management agreements

Clear scope of services

1. Mishap: Ambiguous or incomplete descriptions of services can lead to disputes.
2. Avoidance tip: Clearly outline all services your company will provide. Include specifics on maintenance, repairs, cleaning schedules, and any other responsibilities. Transparency in services helps set realistic expectations for all parties.

Detailed fee structure

1. Mishap: Vague or hidden fees can cause financial disagreements with residents.
2. Avoidance tip: Provide a detailed breakdown of all fees, including service charges, administrative fees, and any additional costs. Make sure these are clearly communicated upfront to avoid any surprises.

Transparent contract terms

1. Mishap: Overly complex or unclear contract terms can lead to misunderstandings and legal issues.
2. Avoidance tip: Use plain English to draft contract terms. Ensure the agreement is straightforward avoiding unnecessary legal jargon that can cause confusion.

Effective dispute resolution mechanisms

1. Mishap: Lack of a clear process for resolving disputes can escalate conflicts.
2. Avoidance tip: Include a detailed dispute resolution process in the agreement. Outline steps for mediation, arbitration, or legal action if necessary. This prepares all parties for a structured way to handle conflicts.

Regular communication

1. Mishap: Poor communication with residents can lead to dissatisfaction and mistrust.
2. Avoidance tip: Establish and maintain clear communication channels. Regular updates, meetings, and accessible contact points help build trust and keep residents informed about management activities.

The role of a solicitor in drafting agreements

Working with a solicitor can greatly reduce the risk of management agreement mishaps. A solicitor will:

• Review and draft agreements: Ensure all legal aspects are covered and the agreement is robust
• Clarify terms: Translate complex legal terms into plain English for better understanding.
• Identify potential issues: Spot any problematic clauses or areas that may lead to disputes.
• Advise on compliance: Ensure the agreement meets all legal requirements and best practices.
• Transfer of ownership: Handling the conveyancing transaction when the public open spaces are transferred to you from the developer.

For management companies, avoiding management agreement mishaps is essential for the successful operation and maintenance of the Public Open Space on a development. It will also feed into maintaining smooth operations and positive relationships with residents. By ensuring clear, transparent, and well-structured agreements, you can put in place a clear framework which mitigates risks and enhance the quality of your service.

Remember, a well-managed agreement benefits everyone involved, creating a harmonious and efficiently run development. Professional legal advice is key to achieving this goal. At Switalskis our specialist Residential Development team can assist with all elements of a management agreement to ensure that the above issues are avoided. Contact us on 01302 320621 or at residentialdevelopment@switalskis.com .