The Scottish Government has committed to a full review of the Property Factors Code of Conduct, and as part of this, Newton Property Management, which manages approximately 40,000 properties across Scotland, believes routine independent auditing of float funds should become standard practice.

A factor’s float is a refundable sum of money paid by homeowners when moving into a property or when a factor is appointed to a development. This isn’t to be confused with property management fees which are usually collected quarterly.

The float allows property factors to deal quickly with routine repairs and emergencies, rather than waiting for every owner in a building to settle their share first. This includes repairs to communal lighting, broken entry systems, emergency plumbing and other maintenance required to keep shared buildings and developments functioning.

The Code of Conduct requires floats to be accounted for separately from a factor’s own funds. However, Newton has discovered that separation on paper is not the same as independent verification in practice. The factor’s call for change follows its own acquisition experience over the past two decades. In this time, it has acquired 14 factoring businesses, with float accounts either missing or materially deficient in almost two thirds.

Stephen O’Neill, chairman of Newton Property Management, said: “A properly managed float allows factors to act quickly when repairs are required. In factoring, timing matters, and floats bridge the gap.

“The problem lies in the fact that many homeowners have no practical way of knowing whether the money held on their behalf genuinely exists at the level it should. If a factor says there is £20,000 in a float account, or £200,000, how would homeowners know? In most cases, they wouldn’t.

“Not every factor is acting improperly, in fact, many are not. But proper scrutiny protects everyone: homeowners, contractors, factors and the credibility of a much-criticised industry.

“Too often, sectors wait until a crisis before reform follows. Property management should not make the same mistake. If floats are not being handled correctly, eventually something will give. When it does, it will not be corporate balance sheets carrying the greatest burden. It will be ordinary homeowners discovering too late that the money supposedly safeguarding their building was not adequately protected.

“Right now, there is simply too much room for inconsistency and too much reliance on trust. Good operators should have nothing to fear from greater transparency. The issue is particularly important as the property management sector continues to consolidate and larger numbers of homeowners are affected by the practices of individual factoring businesses.”

Newton’s float accounts are independently reviewed by chartered accountants every six months to test balances, confirm adequacy and ensure funds are being managed appropriately and in line with the Code of Conduct.

Stephen added: “At Newton, we believe trust must be evidenced and responsible operators should not be commercially disadvantaged for doing things properly. Scotland deserves a property management sector that is ambitious and accountable in equal measure. Homeowners should have confidence that the money being held on their behalf is genuinely protected and independently scrutinised.”

Scotland’s tenement charity Under One Roof is in agreement with Newton’s call for tighter regulation.

Mike Heffron, chief executive of Under One Roof, said: “All too often we receive enquiries from flat owners raising concerns about the lack of transparency and communication from their building’s factor. 

“Missing funds from float accounts are a serious concern, as under-funded or non-existent floats will have significant effects for flat owners expecting that these payments will ultimately pay for needed repairs and maintenance.

“Poor practices such as the one highlighted by Newton Property Management also make it much more difficult for the majority of property managers in Scotland, who are operating in accordance with the Code, to maintain good relationships with the owners that employ them. 

“It is not surprising that even factors are calling for tightening of legislation and independent scrutiny, as they will no doubt be suffering reputational and ultimately financial damage from companies that aren’t following the rules.

“Under One Roof welcomes additional transparency throughout the sector, which would help weed out the minority of bad actors. 

“We also encourage all flat owners employing factors to review their factor’s Written Statement of Service, the Code of Conduct and read up on the rights and responsibilities of flat owners from our website.”