Time for a code of practice
27/08/2005 NST PROP Times By Gurjit Singh

Not so long ago, we commemorated the Highlands Tower disaster. Soon after the tragedy occurred 12 years ago, I had stressed in a number of articles in the local media the need for professional property management as well as the necessity for a Code of Practice for those undertaking the job as well as for building owners.

This was because of the huge task ahead I could foresee in the then building boom era, for managing both strata- and non strata-titled property and a possible free-for-all entry into the profession in the coming years.

Malaysia has seen a lot of creative property development over the years, but less than creative property management. In fact, it is commonly said that we are clever builders but poor managers.

There was a chance to change the perception a few years ago if the proposed Building and Common Property (Maintenance and Management) Bill had been pursued and tabled, but it appears to be still sitting on the drawing board. As a result, Prime Minister Datuk Seri Abdullah Ahmad Badawi, lamented late last year that Malaysia has “world class infrastructure but Third World maintenance”.

Today, there’s hot debate raging as to who should actually carry out the work of property management. On the one side, there are “practicing” property managers (among them shopping centre managers and individuals managing strata-titled properties on behalf of owners cum developers) who feel they are the most capable. On the other, there are valuers registered with the Ministry of Finance’s Board of Valuers, Appraisers and Estate Agents (BVAEA) who claim to be the most proficient.

To streamline the profession, the BVAEA has recommended that all property managers, irrespective of their backgrounds, come under a proposed Property Management Register so they can be regulated.

Through the opinions expressed in PropertyTimes’ Property Management Forum over the past several weeks, it appears that non-valuer property managers and building owners are opposed to the move for regulation, and they have stated the reasons for their stand. However, the valuers and BVAEA have said regulation is necessary in order to sustain and enhance the profession.

Bridging the divide
Interesting though the discussions and viewpoints are, the best solution to end the debate and close ranks may be to dust off the blueprints for a set of property management standards that had been suggested years ago.

The proposed Property Management Code of Practice (PMCP) would be the framework for self-regulating all management practitioners, whether registered or not, and would serve to educate property management professionals and owners about the need to work towards compliance to sustain property values. It may sound Utopian, but a first step must be made now, before the quality of the way stratified properties are managed deteriorates even further.

Among the basic components that has to be considered in the PMCP are existing laws and rules such as the Valuers, Appraisers and Estate Agents Act, 1981 (which falls under the purview of the BVAEA) and the Guidelines on Real Estate Investment Trusts (REITs).

For the latter, Section 6.03 Part B states that the real estate of a REIT must be managed by a property manager duly appointed by the Fund Management Company and approved by the Trustee.

It further states that the appointed property manager must possess adequate human resources with the necessary qualifications, expertise and experience in real estate management.

Since the proposed Building and Common Property (Maintenance and Management) Bill is nowhere to be seen and the creation of the property management register is still under deliberation, the PMCP, coupled with accreditation, is the best move forward.

Not only can it allow closing of ranks and let practitioners do more than protect their own turf, it will - more importantly - also improve quality of service so practitioners can compete internationally and meet the standard of excellence demanded by REITs.

With globalisation, the emphasis is on elevating professional standards and increasing transparency, especially with the adoption of International Financial Reporting Standards.

The PMCP can be similar in its thrust and purpose, enabling occupiers of all types of property to see betterment in the way their properties are looked after, while assisting owners to maintain (if not enhance) the value of their assets.

Furthermore, the PMCP can be used as the reference point in legal cases brought before a court of law, the Strata Titles Board or Housing Tribunal involving the proper discharge of a property manager’s functions.

What the Code could look like
As a guideline for the proper practice of property management, the PMCP will make all references necessary to related laws, including:
• The Strata Titles Act;
• The Strata Titles (Federal Territory of Kuala Lumpur) Rules;
• The Federal Territory of Putrajaya (Modification of Strata Titles Act) Order;
• The Strata Titles (Federal Territory of Putrajaya) Rules;
• The Sabah Land (Subsidiary Title) Enactment;
• The Sarawak Strata Titles Ordinance;
• The National Land Code;
• The Sabah Land Ordinance;
• The Sarawak Land Enactment;
• The Housing Developers Act for West Malaysia, Sabah and Sarawak;
• The Local Government Act;
• The Town and Country Planning Act;
• The Federal Territory Planning Act;
• The State Land Rules;
• The Putrajaya Act; and
• Uniform Building By-laws.

Appointment of the property manager
One of the specific duties of the PMCP could be to spell out the contract between property owners and property managers, to outline what are reasonably acceptable standards and costs as well as aspects such as:
• Details of services to be provided;
• Client’s undertakings;
• Basis of remuneration;
• Termination provisions;
• Managing agent’s liability;
• Professional indemnity insurance; and
• Mediation and arbitration.

Fees chargeable
The basic structure could be specified for the various services provided. The Scale of Fees under Part B, 7th Schedule of the Valuers, Appraisers and Estate Agents Act could form the backbone, supplemented by a scale of charges for services outside the scope.

Conduct and duties of property managers
With the PMCP, property managers would have certain ethics to abide by, and must bring to the building owners’ attention situations where their (the landlords’) instructions might contravene the PMCP or any law of the nation.
Property managers should also:
• Draw up fair policies to deal with management matters;
• Ensure that they are always contactable;
• Keep information on tenants and landlords confidential;
• Deal expeditiously with written requests;
• Maintain efficient records; and
• Keep themselves informed about the latest developments in property practice, procedures and the law.

Taking care of other people’s money
This directly refers to the fiduciary responsibility in holding or receiving clients monies. It is somewhat a trustee relationship, making property managers responsible for opening of bank accounts, keeping of accounting records, issuance of receipts, preparing budgets for the financial year and presenting them for approval.

Service charges, outgoings, management fund and the sinking fund should also be properly listed and accounted for, whether the property is strata- or non strata-titled. Auditing throughout to maintain transparency is a vital requirement.

Presently, there is a lack of accountability in accounting for outgoings and service charge accounts in Malaysia, resulting in numerous disputes between management corporations, tenants and residents.

Property managers should therefore strive for transparency by paying attention to all aspects of accounting for funds received and expended, besides recovery of deficit charges and the return of surplus charges.

Share values and share unit entitlements
Property managers must be familiar with this concept because it determines the voting rights and the share of monthly management contributions and sinking funds.
They must know how the share values are derived because they may be called to assist the developer to establish this before the strata titles are issued.

Collection of rent and service charges
The procedures for this need to be stated clearly in the PMCP and should be understood by tenants and parcel owners in the case of strata-titled properties. Property managers are also responsible for ensuring the cost effectiveness of all contracts under their charge.

Insurance
This important issue should be clearly outlined in the tenancy agreement and also specified in the various statutes related to strata titled development before and after the issuance of strata titles.

However, the critical issue is the type of insurance for the property. The areas property managers with expertise must look into include:
• Attention to various risks;
• Engaging specialist advice;
• Annual insurance valuations;
• Risk reduction policies to reduce premiums; and
• Application of insurance money for rebuilding.

Filing complaints
Procedures for channelling complaints against property managers or managing agents should be included in the PMCP, with steps to resolve disputes.

Disputes between occupiers
Fair dealing is important here. Again, procedures should be drawn up and property managers must be familiar with mediation in order to amicably resolve issues.

Residents tenants associations
These associations have their advantages and disadvantages. Experienced property managers see them as platforms for the resolution of disputes, especially in the case of strata-titled properties, before the formation of management corporations.

Though associations have no legislative bite, they can be effective peer group platforms to seek resolution on various issues.

Property tax
Property managers must ensure that any property tax due is first evaluated and statutory procedures for objections strictly complied with.
Where objections are taken to a tax review tribunal or board, the need for specialist advice may be necessary. Compliance with tax payment is very important to avoid any penalties.

Gurjit has been in the real estate business for more than two decades and has written on numerous issues related to real estate. He is also the author of a book on property management. He can be reached at gurjit8@yahoo.com.