How to Estimate the Fee of a Managing Company

15 june 2015

The expert of the Analytical Center Konstantin Shishka talks about how owners of residential property in apartment buildings can estimate whether the services fee their managing company charges them is adequate.

According to Mr. Shishka, the Government of the Russian Federation passed Decision No. 290 of April 3, 2013 on the Minimum List of Services and Works Necessary for Ensuring a Proper Maintenance of the Common Property in an Apartment Building and a Procedure of Their Rendering and Fulfilling to give owners of residential property an idea about what minimum maintenance and upkeep services their managing company must offer and to prevent managing companies from being able to offer artificially lowered prices by providing less services. The minimum list of maintenance services includes necessary upkeep of load-bearing and non-bearing structures, utility infrastructure and other common property. Based on the current state of the building and common property, the minimum required list of services and the additional services owners of residential property may want, the managing company and owners of residential property agree a list of services the managing company will be providing. This list must then be used by the managing company to estimate costs and then having budgeted the cost of each service, the managing company must determine how much each owner of residential property must pay.

“If you want to check whether the fee you managing company is adequate, you have to figure out what is included in the fee,” said Mr. Shishka. “In accordance with the Housing Code of Russia, owners of residential property must pay for repairs and maintenance, including building management fee, upkeep, current repairs of common property, capital repairs and utilities.”

The expert then clarified that the fee we pay to managing companies is included only in maintenance and repairs fee. The payment for capital repairs is set by the local administration; utility bills are made out by utility companies at rates set by special regional energy commissions. Another factor affecting your maintenance fee is the amount of resources used up for needs of the common facilities in the apartment building and the so called ‘imbalance’ (such as the difference between the reading of the building meter and the sum of the readings of all the apartment meters). In addition, there are rounding errors that can also be included in bills. 

“Let’s look at how adequate is the charge for upkeep and maintenance,” said the expert, “the upkeep and maintenance fee per square meter of common property in an apartment building must be different for each building because different buildings are in different state of repairs. However in practice managing companies basically just take the maximum upkeep and maintenance fee allowed in a given municipality and go from there. Such maximum fees get approved by local governments and are available to the public.”

Another way to determine the right price is based on the use of specialized references where you can write different kinds of services and their price per square meter (for example the Prices (Rates) for Upkeep and Maintenance Services for Common Property in an Apartment Building almanac published by the Center for Municipal Economics on a regular basis).

In Russia an average household spends 11% of its budget on housing. The average housing expense for the OECD is 18% of total adjusted income after taxes. The percentage of  household income spent on housing expenses by an average household varies from less than 16% in Korea to 26% in the Czech Republic and Slovakia.