September 24, 2012

Property Manager : Regulated Professionals?

In my new book, 40 More Questions You Should Ask Your Lawyer Before Buying A Residential Property in Malaysia, I tried to tackle the issue of living in strata developments in most part of the book more than anything else. The process and the dynamic of living in strata developments are a different kettle of fish than living in landed properties. It all comes down to how does the housing developer of a strata development handles the process of getting the individual strata titles. As this process is being handled, the management of the strata property is also a matter which can elevate the status of a housing developer or can be a bane to it. 

The three stages of managing a strata property starts the moment vacant possessions are passed to the purchasers. In the first year from that date, the management will fall on the housing developer. Upon the anniversary of one year from the date of the passing of the vacant possessions, the housing developer must passed the management of the strata development to the Joint Management Body consisting of all the owners, who were once purchasers of the strata development together with the housing developer. The Joint Management Body will then formed the Joint Management Committee who will be the council which will manage the strata development. When the strata properties in the strata development have been issued with individual strata titles, that is the moment the management will pass to the Management Corporation which is the owners in the strata development, managing the strata development all by themselves.

It may seem easy to manage a strata development if not for the intricacies involved in pleasing every each property ow within it. That is why property managements are needed in ensuring strata developments are properly managed. That is why the Building and Common Property (Maintenance and Management) Act 2007 which governs the conducts of Joint Management Body/Committee allows for the appointment of agents to help manage the common property and the strata development as a whole. The Strata Titles Act 1974 also recognised the need for property managers and allows it if the Management Corporation decided to do so. This Building and Common Property (Maintenance and Management) Act 2007 and the Strata Titles Act 1974 actually works hand in hand with the Valuers, Appraisers and Estate Agents Act 1981. This Act which is also known as Act 242 helps housing developers, Joint Management Bodies and Management Corporations, together with the owners of strata developments, choose the best property management agent for their strata development. Currently, Act 242 is in the midst of being amended. Let us look at the amendment to Act 242 in detail. The excerpt below is from a press release by Malaysian Institute of Professional Property Manager.

The Valuers, Appraisers and Estate Agents Act 1981 provides legislative regulatory control by the Board of Valuers, Appraisers & Estate Agents Malaysia (the Board) on a property manager, be it a person, firm or company, who is carrying out property management services for a fee. In order to improve the regularization of the professional property management practice, the Board formulated and implemented the Property Management Standards on 1 June 2010. Besides its clear and timely objective to safeguard the interest of the public from unscrupulous and illegal property managers, it is also to tighten the corporate governance legislative framework which gives the profession a code of conduct within which they are allowed to operate. The provisions regulate the professional ethics; and more importantly the fiduciary duties and obligations of property managers.

While it follows that property managers are governed by the above guidelines, the rapid progress in the property and building industry has given birth to a breed of unlicensed property managers that has been taking the profession for granted. Operating without any license, it could safely be said that a majority of this group are also operating without any background, skills or experience in the field. This in turn has created a lot of problems to home owners. On a regular basis, we would read or watch on the local news, incidents of misconduct or sheer negligence on the part of unlicensed property managers who have failed to perform their duties, and the affected home owners are left with no recourse on liability. The proposed amendment is set to rectify this problem - to further protect the public’s interest, particularly its physical and financial well being. 

Professional property management practice is a specialized profession involving specialized training, knowledge and skills on subjects which include but not limited to, building maintenance, facilities and services management, financial management, property laws and insurance management. Every professional in property management practice for a fee must hold a professional degree in Property Management or Real Estate Management and must be duly registered by the Board. Valuers, who are trained in the art and science of property management which incorporates valuation, land economics and other skills, are first and foremost qualified property managers having obtained their degree in Estate Management or Property Management. After obtaining these degrees, registrants will have to undergo two years of training and pass a Test of Professional Competence. Further, continuous professional development of ten hours per annum must be exhausted in order to remain registered which also makes them eligible for Professional Indemnity Insurance. Anyone who fulfills the above requirements is rendered fit to offer services relating to real estate which include property management, estate agency, consultancy and valuation.

The proposed amendments to Act 242, amongst others, provides the proposed opening of a Register of Property Managers under the Act, to encourage all unlicensed property managers, under certain criteria, to register with the Board ensuring proper control. Whether they are named managing agents, building managers or valuers, if they are offering the services of a property manager for a fee, they must be registered.
The question of ‘monopoly’ and that ‘the opening of the Register is inconsistent with Competition Act, 2010’ should never have been raised here. As in every professional career that requires the knowledge of a core discipline and the need to be registered for professional practice, such as architects, engineers, doctors or lawyers, it is this same spirit that is put forward by the initiative to amend Act 242. Would you also say that the law which requires all lawyers to be registered and licensed has created a monopoly in the profession among licensed lawyers? If you would not risk your life on an unlicensed lawyer (or any other professionals who are in charge to safeguard and protect the public’s well being), why would you risk your life on an unlicensed property manager?

It is very important to note that registered property managers who are found to be negligent are subject to disciplinary actions under the Act and may even face disbarment from practicing – which will make the licensed property managers more responsible, failing which they might be in danger of losing their license and will eventually, be out of business. They can also be expected to comply with all the laws attached to the profession, as well as their fiduciary duties, such as providing audited accounts for public viewing which is one of home owner’s basic rights. Having said that, it is to be emphasized that building owners have all the right to manage their own properties, and Joint Management Bodies (JMBs), Management Corporations (MCs) and shopping centre owners can manage their own buildings or hire a registered property manager of their choice. The Act 242 only applies to those who practise property management and offering services as a property manager for a fee.

Another misconception is that the fee involved in appointing a licensed property manager is expensive. Contrary to what was said, the minimum management fee payable to a registered property manager is in fact, RM50 per holding per month, and not per unit. This has been clearly defined in the Local Government Act for subdivided buildings as “the Common Property and any parcel thereof” – which clearly provides that the minimum fee is RM50 per common property. To say that the management fee is RM50 per unit is not only wrong, but disregarding the fact that property managers are not managing individual strata units but only the common property.

It is a fact that property managers not registered under the Act will face difficulty obtaining indemnity insurance cover. Even if they do obtain it, if something goes wrong and a claim is filed, the insurance company may deny compensation on the grounds that the property managers are not legitimate, simply because they are not registered with the Board. The importance of an indemnity cover cannot be stressed enough. The basic terms and conditions of a Management Agreement between a Joint Management Body or Management Corporation and the property manager must provide indemnity cover because the two parties will eventually be exposed to risk if the companies or people they entrust their duties to are negligent or reckless in performing their duties. Taking the coverage will also be of comfort to the individual property manager as he will not have to suffer in his personal capacity in the event that he is sued for something outside his control. In this, the benefit works for both home owners and the licensed property managers themselves.

The task of a property manager is not simply “administrative” in nature. It requires clear judgment, immediate reactions to complaints, good communication skill, trustworthiness, ethics and a lot of other skills, values and competencies which comes through education, training and experience. A good property manager is expected to manage properties under its portfolio as if it were his own, paying a great deal of attention to every management detail, not limited to just the physical asset. In no way is the proposed amendment denying the fact that there are unlicensed managing agents out there who are absolutely competent and capable of performing their duties. What the Board is submitting is that, one may continue to practise as a professional property manager as long as one is registered under the Act so that their duties in managing their strata estates can be made clearer - ensuring the quality and professionalism of services rendered to the public at large is maintained at the highest level. In short, the amendment of the Act 242 ensures corporate governance, transparency and protection of the public.

Let us hope that the proposed amendment which will be tabled at the Parliament very soon will help raise the standard of property managers and make them into a regulated professional body like the other well-known professionals such as lawyers, doctors and engineers with guidelines and professional indemnity insurance.

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