Rip-off service charges and unfair costs paid by leaseholders and renters were in the government’s sights this week after ministers declared there was “overwhelming evidence of the harm some people experience”.
On Wednesday it announced plans for a crackdown on property agents in both the leasehold and private rented sectors.
The Department for Communities and Local Government is seeking views on what measures it should take.
It says: “Consumers often have very little control over the services they receive, and limited ability to challenge agents when not of the quality they expect or deserve. Tenants and leaseholders can be exploited and subject to exorbitant charges.”
Service charges are the fees most leaseholders pay to cover their share of maintaining their building, and are frequently the subject of controversy: only last month, Guardian Money reported on the case of Mary-Anne Thompson, a nurse, who has seen the annual service charge on her London flat increase from about £500 to more than £7,600. She claimed the £640 a month she had been asked to pay for her three-bed flat above a shop in Brixton was “extortionate”.
Our article said that “cases such as this suggest ministers also need to look at whether flat dwellers should have more rights to challenge unreasonable service charges”. So perhaps the government read our report.
Back in 2011, consumer organisation Which? claimed leaseholders were losing out to the tune of £700m a year because of “excessive fees and hidden costs” contained within service charges. Last December, Labour MP Jim Fitzpatrick said that, given the sector was now a lot bigger, that figure may be as much as £1.4bn.
Service charges vary widely: leaseholders hand over an average of £1,123 a year, according to a Competition and Markets Authority (CMA) report. That was in December 2014, so the typical amount is probably higher now. The CMA said that when it came to complaints on this issue, 52% mentioned “perceived excessive or unnecessary charges,” and 22% cited a lack of transparency.
On top of that, leaseholders can face “unfair” administration fees, says the government – for example, when seeking permission to make changes to the property or keep a pet. And they may also have to pay large amounts into a sinking/reserve fund to cover future work.
There are about 4.3m leasehold properties in England. However, the government says: “The problem isn’t just for leaseholders, but for some of the 4.5 million tenants in the rental sector, too – with overcharged costs for repairs and services often passed down to tenants.”
In a “call for evidence” document published this week, ministers outlined a long list of problems with the current system. They said:
• A lack of minimum standards has allowed unscrupulous agents to enter the market. “Anyone can become a property agent, regardless of their skills or experience.”
• Leaseholders and tenants don’t have enough power to challenge poor services.
• The cost of major works can be particularly problematic. The “Section 20” consultation process is meant to ensure leaseholders have a say but, in reality, offers limited opportunity for individuals to influence decisions.
• “Right to manage” (RTM) – taking control of the management of the building – is meant to offer a solution for leaseholders. But getting the consent of 50% of qualifying tenants “can be difficult,” particularly when some don’t live in the property. Under the rules, at least 75% of the building must be residential. “Developers can abuse this by purposely building properties that exclude leaseholders from accessing these rights.”
The call for evidence will run until 29 November, and the government says it will bring forward detailed proposals “early next year”.