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Buy to Let & LettingFinance

Buying a Flat? Beware the Service Charge Rip Off

Anybody who owns a flat as a leaseholder pays a service charge. Fine. The service charge is charged for the upkeep and maintenance of the building.  The management company collects the service charge on behalf of the freeholder and the monies are spent on the building to ensure it is maintained and looking good. This is all fine. In theory…

But in reality – what control do we really have over the management companies and over the spending of our hard earned money?

Yes, we get the accounts of the service charges – usually a year later after they have spent the money, and they provide a future estimate as to what the service charges will be and any works which are planned.

They send out various notices of what they are thinking or planning of doing. They send section 20s because they are planning some major works…and we get our chance to reply…but do they really have to listen?

This issue has come to the fore where a flat I own in a block in London owned by Peabody has been subject to a major works notice. Now earlier in the year they decided they would upgrade the intercom entry systems. I didn’t really think they needed upgrading – but Peabody disagreed. It was happening and I had to pay my share – which was some £300. It sounded quite steep to me – but there was little room for argument so I paid it.

The latest major works is now out of this world. They have decided that to meet current fire regulations the communal hallway of our block of 12 flats has to be painted in fire resistant paint. In principle, I agree with this.

What I don’t agree with is the price.  For painting the communal hallway for our block of 12 flats it is going to cost over £33,000. Yes that is £33,000.  And my share is £2800.

So when I saw the letter, I thought they must have made a mistake. How can it have cost me just £300 for my share of a new intercom system and yet to paint the communal hallway it is going to cost 10 times more? This is paint we’re talking about. And it is just a hallway for 12 flats. And it is a very narrow hallway. And I have no idea how it can possibly cost this much.

And so having not bought fire resistant paint before and wondering why it cost more than liquid gold I decided to do some research. I have found that I can buy fire resistant paint to the standard they need at £10 per litre. Whichever and whatever why I look at this I cannot see how it is going to cost over £33,000 to paint our hallway.

So I have tried to call Peabody who invited “observations” and I observed that given the cost of the paint and the time that it would take that the quote was ludicrous.  I was informed that they use one main contractor, that was the price, I should put my observations in writing and they would “observe” them. That’s it. That’s all they do. When they invite leaseholders to make observations they’re not going to listen. They don’t give a damn if the quote is too high – why would they – they’re not paying the bill – and anyway they get to charge their 20% “management fee” on the works so the higher the quote the more money they make.

So now I am off on a mission to see if there is anything at all I can do to make them listen. I have started rallying the neighbours for support. From talking to other people who have been in this situation before, it sounds like I am wasting time. But, I have to try.

So next time you are thinking about buying a flat beware the service charges, beware the works which are planned and beware that the management company have no incentive to get the best price.  You may own your flat and you may have a lease – but in reality you have very little rights and even less control.

34 comments
  1. Karen Haller

    Hi Sam, how timely is your blog post.
    Just this morning I replied to the managing agents of my rented London flat. They had ‘put out to tender’ the refurbishing works to their preferred suppliers. They went with the cheapest which was still incredibly high expecting us to be able to materialise thousands of pounds. One of the flat owners review the costings and highlight major discrepancies leading to a significant cost reduction to each of us. Now it transpires the managing agents don’t check the quotes. Now I wonder what else they are not doing that we pay them do to as part of our quarterly service fee. I do know they have managed the block for around 5 years now yet have never carried out a site visit. Like you, whenever I write for clarification or an explanation they just fob me and all the other owners off or ignore our queries completely.

    1. Sam

      Karen – your story is worrying. How can they manage the block without having ever visited it! Sounds like when you take the time on these things you can get results!

      1. Sam

        Thanks to my tweeps – @servicechargeuk @emptyproperty @supasallee @adiuvo_uk and good advice. I see even organisations as large as peabody can be challenged:

        These links have been great:

        http://www.lease-advice.org/publications/documents/document.asp?item=19

        http://www.direct.gov.uk/en/HomeAndCommunity/BuyingAndSellingYourHome/Leaseholdproperties/DG_193052

        http://www.leaseholdadvicecentre.co.uk/Section%2020.htm

        http://www.lease-advice.org/publications/documents/document.asp?item=14

        http://www.practicalconveyancing.co.uk/content/view/9655/1

        Thanks for all your input and let’s hope I get a good result

  2. Caroline Baines

    You can apply to the LVT (Leasehold Vaulation Tribunal) for a hearing if you think the Agent is charging you too much. It’s not too expensive and in my experience they’re fair and very reasonable so long as you provide them with all of the information they need up front. Also, check if your Agents are members of ARMA and if they are, complain to them. The S20 process is there to protect Leaseolders from unscrupulous agents, not to force you into paying them more. The initial S20 consult letter always includes a provision for you to suggest your own contractor who the MA should get a quote from. If you do this, it usually shows up how ridiculously high the other ‘quotes’ they’ve had are, and gives you a better position to argue from. It also increases your chance of getting other Leaseholders involved as they can then see in black and white what the differences are. Don’t forget you CAN change your managing agent if you’re not happy with them. You don’t have to put up with it indefinitely.

    1. Sam

      Thanks for that. I spoke with LVT last week and they advised me to put a letter together which i then sent recorded delivery so that I knew they had. I have just recieved a letter today that the works start next month! Am about to call LVT again. This is a Peabody block and they have a long service agreement and so I cannot suggest other contractors or change agents (LVT have confirmed this). However, I am not giving up without a fight so thank you for your support and advice – I am listening and acting 🙂

  3. Damian O'Toole

    Hello Sam

    I am going through a similar issue with our Freeholder but with alot bigger figures.

    The freeholder wants to rerun all the HW/CH pipes externally from the communal Boiler to each flat 175 of them.

    I have just read the feasibility report and quotes at this stage are circa 3.35mil.

    So I would love to hear how you battle is going.

    Also we are looking at possibly trying to bring a negligence claim against the freeholder as the pipes lifespan ended 45yrs ago.

    Damian

  4. Jonathan

    It’s a bit scary, but in smaller blocks there is always the option to mobilise the leaseholders and replace the management company. BTW, I have to recommend F & S Property who manage one of ours- always effective and charges so far seem reasonable. Web site is terrible, mind you…

  5. Vlad

    Your post is very timely as I got in a similar situation just a few weeks ago. Our service charge increased by 60% without prior notice or consultation with leaseholders. Upon inspecting the summary of service charge budget for 2013 we discovered the following:

    1) the electricity budget for *communal areas* is now £4000/year, which is £8 per flat per month. Is this normal considering that I pay £12 for electricity in my flat?

    2) According to our managing agent, remote collection of gas meter readings from each flat cost £9.9 per flat per month – isn’t this ridiculous? (each flat has a gas sub-meter which is already connected by a wire to a central data collector). The payment for gas itself is separate and is outside of service charge budget.

    3) to minimise item #3 the budget includes a purchase of a ‘smart reader’ to automate gas meter readings from individual flats, £5000.

    4) a neighbour says that he didn’t get gas bills since july 2011. this means that gas bill apportionment is done no more frequently than every year. what’s the point of installing a ‘smart meter’ then?

    5) 2 boilers are “beyond economic repair” and have to be replaced within 2 years. Seems suspicious considering that the building is 6 y.o. and the average service life of a boiler is 15-20 years.

    6) the managing agent always vague in responses and keeps offering to discuss things over the phone, probably to avoid responding to emails

    What can be done about it?

    1. Sam

      Hi, your situation sounds very worrying.

      I would urge you to contact LEASE – this is a free advice service funded by the government. I have had to contact them previously and found them very useful.

      http://www.lease-advice.org/

      Please let me know how you get on

      Thanks

      Sam

  6. Paul

    Hi, YES YOU ARE QUITE RIGHT. I RUN A PAINTING AND DECORATING COMPANY THAT SPECIALISES IN REDECORATING BLOCKS OF FLATS AND WHEN WE HAVE BEN ASKED TO TENDER BY RESIDENTS WE HAVE ALWAYS BEATEN THE TENDERS GATHERED BY THE MANAGEMENT AGENT SOMETIMES BY AS MUCH AS 60%. EVEN WHEN THEY EMPLOY SURVEYORS TO DO THE SECTION 20’S WE HAVE FOUND WE CAN ALWYS BEAT THEM TOO.

    IF WE HAVE BEEN ASKED BY MANAGEMENT AGENTS OR SURVEYORS TO TENDER I HAVE FOUND THAT OUR TENDERS HAVE MYSTERIOUSLY GONE MISSING AND ON VISITING THE RESIDENTS HAVE FOUND THAT THEY WERE NEVER SUBMITTED.

    I CANNOT GIVE THE NAME OF MY COMPANY ON HERE BECAUSE SOME OF MY CUSTOMERS WOULD NOT LOOK UPON IT FAVOURABLY.

    BUT SUFFICE TO SAY I WILL ADD I HAVE BEEN ASKED TO SUBMIT HIGHER TENDERS SO A CERTAIN COMPANY ON THE TENDER LIST CAN GET THE WORK AND I HAVE BEEN ASKED FOR BRIBES AND EVEN KNOW OF PROPERTY MANAGERS THAT HAVE RECEIVED ANYTHING FROM NEW IPHONES TO NEW CARS FROM COMPANIES THAT HAVE BEEN GIVEN WORK.

    UNDER THE LEASEHOLD LAWS YOU ARE PERMITTED TO SUBMIT YOUR OWN COMPANIES TO TENDER. I WOULD STRONGLY SUGGEST ANYONE READING THIS TO DO SO BUT MAKE SURE THE COMPANY YOU SUBMIT IS V.A.T REGISTERED AND HAS A GOOD HEALTH & SAFETY RECORD AS THESE ARE USUALLY THE REQUIREMENTS NEEDED.

    1. Sam

      Hi

      Thank you for your comments and for also sharing your insights from an insiders perspective. It is hugely worrying what you say and I thank you for your advice in terms of leaseholders trying to get best value for money. I do appreciate your comments so thank you again for sharing your experience, it really is valued.

      Sam

      1. catherine

        i have a good idea surely if all leasehold flat owners stopped paying service charges then rip of management agents would have to comform to proper legislation

  7. Property Maintenance Bath

    Hi Sam,

    Great post, I work in the property maintenance industry and I know exactly where the tennant is going to get ripped off. I have seen it so many times where students are getting ripped off from landlords and it is unfair!

    Again brilliant post, keep em coming 🙂

  8. me

    It sounds like FRAUD to me and a genuine backhander to someone at Peabody. You should report it to your local council immediately. It does not ring true at all. If a mechanic tells you your car needs a new engine – do you just agree or take it somewhere else to check?
    See if you can start some sort of TMO…looks like theres two Peabody TMOs already – link at bottom:
    We have one, The meetings can be dull, but at least you get to hear proposed major works and what’s going on and we also have total control on spending so one of us around the table will always chip in or ask for a second quote. Anyone that lives on the estate has to ask for anything they want anyway and that goes to the committee to decide. All new (council) tenants are also interviewed and it’s up to the committee to decide who they take on….which is good because no-one wants asb next door or above etc…

    http://www.peabodytenants.co.uk/forum/thread.cfm?start=1&end=4&chatter_id=1&threadid=93&step_messagecount=1&step_rowcount=12&threads_start=551&threads_end=600

  9. Peter

    Hello Sam,
    My management company does not charge over the odds (yet), as my service charge is around £100 a month, but are quite terrible in terms on managing and listening to my complaints…
    Let us know the status and good luck!

    1. Sam

      Hi Peter, I’m sorry to hear you are having to put up with terrible management – have you tried contacting your neighbours to share experiences?

      1. Peter

        Hello Sam,
        I did and i know i am not the only one having these issues. The problem is that there is over 120 flats in my block and about 3/4 are rented out so i can never get to the owners….

    2. Advance Block Management

      Any amount charged can be considered high,but it depends what you are getting in return of the money spent. £100 per month is rather high if this is a development of upto 60 units, but can be good if its a development of 250 units where you also have a consierge, lift maintenance etc.

    1. Colin

      How bloody true……they are vampires sucking the blood from landlords/owners. I made the mistake of buying a property and listening to the old bullshit of “we have a solicitor/legal beagle with whom we have negotiated a cheap rate for buying this property. WARNING….this means NOT independent. Then I find that they forgot to mention that I have to pay the “management company” an annual maintenance fee for the next 80 years….without an option to sack/replace them. Really?

      1. freddie

        This is all food for thought, and very interesting. Just tried to get in touch with management company on new-build, who are charging £153 pcm service charge for a one bed apartment in a block of four similar properties. Built by Linden Homes, who choose their own agents. I’m thinking twice about this purchase, as it was very difficult getting through to the agents, and when I did they were pretty aggressive. There really is not an awful lot to do on the estate, as it is minimal gardening, and ours is above a newly built co-operative store. It’s a wealthy area; perhaps they think they can get away with these charges.
        I just wonder how soon a management agent can be given the boot. I’d imagine there’d be some clause in the lease saying they’re there for a certain amount of time. Of course, by then you’ll have bought the place and all too late.

        1. Sam

          That does sound a lot of money if you don’t have any amenities such as lift, gym etc. Changing a managing agent is a long process which will also require you getting majority agreement from the rest of the leaseholders. If possible, perhaps you can knock on the door of one of the owners who currently live there to try and find out more? You also say the flat is above a co-op, it would be prudent to ensure financing is available to those who you intend to sell to in the future as flats above shops can be very difficult to raise lending on. If in doubt, call a mortgage broker. Always best to do lots of homework prior to purchase.

  10. Advance Block Management

    Great post thanks for sharing this.

    It is simply bad that managing agents indulge in this bad practice of ripping leaseholders off.

    With regards to the section20 notice. If you do make observations and hand in a quote much cheaper, they would have to give reasons if they still decided to go with the higher quote. God knows why, other than making their fee. Sounds like terrible agents to me but something that is common in the industry. Common but not right.

    If an agent is behaving in this manner and not giving leaseholders the opportunity to save money and to choose their own contractors, than changing agents would be the best course of action. However that doesnt solve the current situation you are in.

    My advice? Form a Right to Manage Company, get on the board of directors, and make these decisions yourself with the help of a suitable management company that works with you, not against.

      1. Lynne

        Hi Sam thank you for sharing your experience. Much appreciated. I wonder if there is any updates?

        I am a first time buyer. I really like a one-bed flat which comes with a £115 per month service charnge. It comes with a share of freehold too. There is no lift, no garden, no parking… I think it’s expensive, but if the management agent is doing the work then that’s fine. It’s a grade two listed building. But I am not sure as I can see from many others’ stores…

        1. Sam

          The key thing you (or your solicitor) need to check is at least the last 3 years service charge accounts and see if they have changed (and if so, why?). You also need to ask if there are any major works planned at the building as this will have a major impact. Research, research, research is the key! Don’t be afraid to ask questions.

  11. David

    Hi Sam
    I too am a leaseholder in a small Peabody estate. On my own I took them to court in 2011, as other leaseholders not willing to go down the legal route, regarding their charge for major works – we too had the “fire-resistant” paint issue, together with new water tanks, new roofing, huge scaffolding costs (scaffolding stayed up for 5 months though works were only 1 month!). Although I represented myself (or because of this) I had a partial win: the LVT reduced the bill to leaseholders by 25%.
    Not a real win as the whole fight was about Peabody not having done the consultation properly – thus only £250 was due. Plenty of documents were given to the court proving such point.
    However, the judgement was biased in favour of Peabody right from the start, i.e. I was fighting an uphill battle. Why do I say this? Theoretically a judge is assigned to a case randomly. However I discovered that our judge had been assigned to another Peabody case in the past, and in that case too she had given a judgement favourable to Peabody.
    What is the “joint probability” of the same judge being assigned to a Peabody vs Leaseholder case and giving in both cases a judgement favourable to Peabody? 1 in 1 million?
    Anyway, soon I will be going to court again against Peabody, and again on the issue of non existent and exhorbitant service charges, i.e. either for works not carried out at all (i.e. charges completely made up) or for works not carried out to a reasonable standard.
    Get in touch and let me know your experience, your tips and advice.
    Best regards,
    David

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