(qlmbusinessnews.com Tues. 28th May, 2024) London, UK —
My Flat's Service Charge Has Doubled to £8,000.
Richard Moore describes buying his flat as “the worst decision of my life” while sitting in the small property he purchased as an investment for his retirement.
“My service charges have doubled from £4,000 to £8,000 a year. I feel like I'm being robbed,” he says.
The building's cladding issues have rendered the flat effectively worthless until they are resolved.
Richard bought the £300,000 leasehold flat in 2016. In a leasehold arrangement, the buyer owns the lease for a specified number of years, while the freeholder owns the building and the land it stands on. The freeholder hires a managing agent to maintain the building and collect service charges.
The managing agent justifies the increase due to necessary roof repairs, although Richard points out that the flats are less than 10 years old.
New reforms to leasehold and freehold laws came into effect on Friday. These reforms aim to help the estimated five million leasehold property owners in England and Wales by making it cheaper and simpler to extend their leases, offering a standard 990-year lease on renewal.
The reforms also require managing agents to be more transparent about their costs. Richard disputes his managing agent's claim that they are already transparent.
According to The Property Institute (TPI), service charges like Richard's have increased by over 40% in the past five years, but only 4% in the last 12 months.
“We have above-inflation increases in service charges, and that comes as no surprise to any leaseholder,” says Andrew Bulmer of TPI. “Some service charges have gone up moderately, but in tall and complex buildings, service charges have skyrocketed, causing significant pain.”
Bulmer denies that managing agents are making excessive profits, stating that “margins are tight.” TPI data shows that the only cost not experiencing above-inflation rises is the fees managing agents charge for their admin and running costs.
Bulmer argues that the new legislation missed an opportunity for proper regulation with penalties for misbehaving managing agents.
“Proper regulation would not only ensure transparency but also regulate behaviours, introducing trust between service providers and customers.”
The biggest factor driving up service charge costs is building insurance premiums, which have risen by 92% in five years. Insurers argue that they must correctly price the risk, especially after the Grenfell Tower fire and subsequent cladding safety crisis.
“We empathise with leaseholders under emotional and financial strain and are doing all we can to support them,” says Mervyn Skeet from the Association of British Insurers. “However, the industry is correctly pricing the risk now known post-Grenfell.”
Despite the government's pledge of several billion pounds to remove flammable cladding and address building safety issues, premiums continue to rise. The new leasehold laws will restrict insurance brokers from charging large commissions, which some managing agents have been passing on to leaseholders with additional admin charges.
Government figures indicate that all tower blocks with the same cladding as Grenfell have now been fixed. However, Skeet notes that while the government ensures buildings meet “life safety” standards, the insurance industry needs to consider the overall resilience of the building.
“Getting buildings to a life safety standard is essential, but we need to assess and price for the entire building's potential loss,” he explains.
Following Grenfell, many insurers became more risk-averse, refusing to cover tower blocks with safety issues. The government has pressured the industry over soaring premiums, leading insurers to launch a new scheme to share the risk of the most dangerous blocks still in need of repair.
“We hope to see this scheme impact over the next 12 months,” Skeet says. “Increased market capacity and basic supply and demand should lead to changes in premiums.”
Richard's flat in Croydon remains unremediated, with ongoing cladding and safety issues. His experience has made him sceptical of leasehold properties.
“It’s affecting millions of people in this country. I’m not the only cladding hostage out there,” he says.
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