Changing managing agents should be a relatively straightforward process. However, disputes can arise when an outgoing managing agent refuses or fails to provide records, transfer service charge funds, or cooperate with the incoming agent. Such situations can quickly create operational difficulties and expose the landlord or management company to significant risks.

Who Owns The Information?

Although a managing agent may hold records on behalf of its client, those documents do not generally belong to the agent. Service charge records, contractor information, leaseholder databases, insurance documentation, health and safety records, warranties and keys are usually held by the managing agent in its capacity as agent and should be made available to their client, whether landlord, RMC or RTM company, upon termination of the appointment.

The failure to provide these documents may expose residents and directors to unnecessary risks and prevent the proper management of the development.

Service Charge Funds Are Not The Agent’s Money

Service charge monies are held on trust pursuant to Section 42 of the Landlord and Tenant Act 1987. An outgoing managing agent holding service charge funds cannot generally treat those monies as its own or refuse to transfer them simply because there has been a change of managing agent.

Failure to account for or transfer service charge monies may amount to a breach of trust and may justify proceedings for recovery, together with an order requiring the agent to provide a full account.

Data Protection Does Not Prevent Handover

Outgoing agents occasionally cite data protection legislation as a reason for withholding information. In most case, this argument is misconceived.

The personal data held for the purposes of managing the development belongs to the client landlord or management company. This data should be transferred to the incoming agent or returned to the landlord or management company, subject to the terms of the management agreement and the parties’ respective responsibilities under data protection legislation.

Professional Complaints

It is a legal requirement for all lettings agents and property managers in England to belong to a government approved redress scheme from 1 October 2014 - see here. Insofar as a former agent in not handing over information/money as they should then a complaint may be made to the relevant redress scheme which will be one of the following: -

• The Property Institute

• RICS

• The Property Ombudsman

• The Property Redress Scheme

Whilst these routes may not produce an immediate handover or resolution, they can provide additional pressure and may even lead to disciplinary action.

Court Remedies

If all else fails and the handover is still delayed or incomplete despite requests and potentially a compliant via a professional body or redress scheme, what can the landlord, RMC or RTM company do to compel the outgoing agent to provide a property handover? There are a number of options for the affected client.

Breach of Contract Claim

The principal cause of action will often arise under the management agreement itself. Depending on the terms of the contact, the outgoing managing agent may be under express obligations to:

• Maintain and preserve records.

• Account for service charge monies.

• Cooperate with a successor managing agent.

• Deliver documents and information upon termination.

• Transfer keys, access devices and electronic data.

• Assist with an orderly transition.

Where those obligations are not complied with, the landlord or management company may have a claim for breach of contract.

In addition to obtaining an order requiring delivery of documents and funds, the landlord or management company may be entitled to damages. Such damages may include:

• Additional management costs.

• Professional fees.

• Increased insurance premiums.

• Costs associated with delay major works.

• Regulatory or compliance costs arising from missing information.

The scope of any claim will depend upon the terms of the management agreement and whether any limitation or exclusion clauses apply.

Professional Negligence Claims

In some cases, the conduct of the outgoing managing agent may also give rise to claims in negligence.

Managing agents owe a contractual and, in certain circumstances, tortious duties to exercise reasonable skill and care in carrying out their functions. A failure to maintain and provide proper records, safeguard important documents, administer service charge funds appropriately or preserve health and safety information may expose the agent to liability where loss has resulted.

Whether a separate claim in negligence exists will depend upon the facts and the extent to which the alleged losses are purely economic. In many cases, breach of contract will provide the primary cause of action, although a negligence claim may arise concurrently.

Practical Steps

Before commencing proceedings, the following steps are usually advisable:

1. Review the management agreement and termination provisions.

2. Issue a detailed written request for handover.

3. Identify precisely which documents, records and funds are outstanding.

4. Allow a reasonable period for compliance.

5. Send a formal letter before action.

6. Consider complaints to any relevant professional bodies/redress scheme.

7. Commence proceedings if necessary.

Conclusion

An outgoing managing agent does not generally have the right to frustrate a change of management by withholding information or service charge funds. Landlords, RMCs and RTM companies have contractual, equitable and, in appropriate cases, tortious remedies available to secure the return of documents and monies necessary for the continued management of the development.

Prompt action is often essential. Delays in obtaining records can affect insurance, building safety compliance, contractor arrangements and service charge administration. Depending upon the circumstances, an outgoing managing agent may face claims for breach of contract, negligence and breach of trust, together with applications for injunctive relief and recovery of consequential losses.

Early legal intervention can frequently resolve disputes before more substantial losses are incurred.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.