MILLIONS of people living in leasehold properties are being hit with spiralling service charge fees – but there is a way to fight back.
Almost five million homeowners pay service fees, which have risen 11% in the last year to an average of £2,300 per month, according to Hamptons.
Some leaseholders have seen charges sky rocket, making it unaffordable and tricky to sell their home.
While others have been hit by unfair charges.
The government has planned to reform the system – but there are delays.
This week JAMES FLANDERS explains how to challenge unfair charges.
SOARING FEES
Service charges are a fee paid by a leaseholder or resident set by a landlord.
The amount varies each year depending on costs to the landlord.
They can include charges for maintenance, repairs and insurance.
The details are usually set out in your lease.
The fee is usually set on what the landlord thinks they will spend.
At the end of year the landlord should provide a statement.
Some leases allow landlords to ask for contributions towards a “sinking fund” to build up reserves for future larger scale works.
David Fell, lead analyst at Hamptons, said: “Both buyers and mortgage lenders have become increasingly cautious about committing to high service charge costs, particularly where they perceive charges to be disproportionate to the amenities they get in return.
“As a result, would-be sellers paying high charges have often seen the value of their homes rise more slowly or even fall.
“In some cases, sellers are offering potential buyers a cash contribution towards future service charge payments.”
UNFAIR CHARGES
Some leaseholders have found that they are being charged unfair fees.
Tribunal judges have made some landlords pay back up to £100,000.
In one example, they ruled that a £135 fee to change two light bulbs was excessive.
In February 2023, it was revealed that landlords and insurance brokers were secretly taking up to 60% of the £1.6billion leaseholders paid for building insurance as hidden commissions.
New rules now stop insurance companies from choosing policies just to earn the highest commission, helping leaseholders get better value.
But brokers and managing agents are still allowed to take commissions.
The government has promised to ban excessive building insurance commissions through the Leasehold and Freehold Reform Act 2024.
Instead, landlords will only be able to charge a straightforward and fair “permitted insurance fee” for the work they actually do, making costs clearer and protecting leaseholders from hidden charges.
However, these proposed laws still need further legislation to come into effect, and the government hasn’t yet provided a timetable for this.
New rules planned by the government also plan to introduce commonhold agreements to replace leasehold ones.
Commonhold allows flat owners to jointly own and manage their buildings, cutting out landlords and property management companies.
But the proposed rules only apply to new homes.
A spokesperson for the Ministry of Housing said they know “far too many leaseholders” are being hit with “unreasonable and extortionate charges”.
A draft of the bill is expected later this year but leaseholders may have to wait months before it becomes law.
HOW TO CHALLENGE FEES
Leaseholders have a legal right within six months of receiving a summary of costs to request extra information from their landlord.
You can challenge a cost if you think it’s unreasonable, the standard of work is poor or you don’t think you should be paying it.
For example, you might question a fee for lift maintenance if you live in a ground-floor flat and it’s not included in your lease.
Or you could challenge charges for communal services, like a gym that’s always closed or a concierge service that doesn’t have staff.
You will need to apply to a tribunal which has the power to rule on whether the service charge is reasonable or payable.
In England this is the first-tier tribunal (property chamber).
In Wales it’s the leasehold valuation tribunal.
Applying to the tribunal usually costs a fixed fee of £110, though this may be waived if you’re on certain benefits.
If your case is transferred from court to the tribunal, you’ll only pay the difference between the court fees and the tribunal fee – or nothing if you’ve already paid more than £110 in court fees.
If a hearing is scheduled, you’ll need to pay an additional £220 hearing fee.
Speak to the Leasehold Advisory Service online at lease-advice.org or call them on 020 7832 2500 to find out more and get free advice on service charge issues.
You could also apply to the Housing Ombudsman if you have a complaint about how your service charge fees have been managed.
It says cases have jumped by 25 per cent in the last four years.
If you’re finding it hard to pay your service charges, there’s support available.
If you’re on Universal Credit and have been receiving it for at least nine months, you could get help with your service charges if you own a leasehold property.
People over the state pension age can also get support through pension credit.
£5.3k charge but I waited months for vital repairs
LAWYER Liam Spender, 41, thought he’d bought his dream home when he purchased his £591,000 two-bed flat six years ago.
But within months it had turned into a nightmare.
“I regret buying it to this day,” said Liam, who lives in the Isle of Dogs, east London.
Initially he paid a £4,200 a year service charge but it has rocketed to £5,300 in just four years – a 26% increase.
A huge chunk of his bill – over £1,200 a year – was for buildings insurance, according to Liam.
Yet, despite paying so much, Liam had to wait months for repairs after part of his flat’s floor collapsed.
To make matters worse, he discovered £300 of the insurance fee was being taken as commission by his landlord and their broker.
In 2021, Liam teamed up with 103 homeowners in his building block and applied to the property tribunal.
A few days before the case their landlord conceded and awarded the homeowners £100,000 in backdated commission payments.
It meant that Liam got £300 back, while his neighbours in larger properties received significantly more.
“There are millions of people like me in the same boat and they are owed money they don’t even know about”, said Liam, who has since founded Leaseholder Action to help other people being hit with secret commission fees.
RIGHT TO MANAGE
If you don’t get anywhere by approaching your management company, you could take over managing the charges yourself via Right to Manage.
It is a legal process where leasehold residents in flats can take over managing the maintenance and services.
To do this, enough long-leaseholders (those with leases originally over 21 years) need to get together and form an RTM company.
It costs £50 to set up a company and takes 24 hours to register.
You then need to serve notice to the freeholder of the development – the person who owns the land – letting them know you are taking over the right to manage.
They then have one month to dispute this.
The government is also planning to remove the requirement for leaseholders to cover the landlords expenses during the process, which will save homeowners around £3,000.
It’s also not allowed if there are four or fewer flats and a landlord lives in the building.
It could help you cut out management fee costs and charges for unnecessary work – but you will be responsible for the company and annual reporting.
Unless one of you is trained in these areas you may need to take on an accountant or managing agent.
Applications to set up RTM companies rose by 20% last year, according to Direct Line.
