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Flat leaseholders and high service charges

Flat leaseholders and their concerns regarding high service charges

Flat leaseholders are becoming increasingly worried about their service charges and in many cases, people are feeling trapped as they are struggling to sell their properties.

Why have service charges increased so much?

Matthew Cox, who heads up Charles Cox Property Group talks to Andrew Marsh about the rising prices and explains why things are so expensive. The company are very transparent regarding their costs and have little control when it comes to insurance and utility increases, contractors, maintenance and material costs. Why not listen for more information and find out if there is any way you can save on these costs or read the transcript below for more information.

You can have control regarding where the money goes if you set up a Right to Manage company and take over the management of the building. If you have a good managing agent, they will explain to you what the service charges are and what they are being spent on.

According to Monday’s article on the BBC, there are 4 million leaseholders across the country. The new Leasehold and Freehold Reform Bill will make it easier for people to extend their leases or buy their freeholds in England and Wales.

The video is a discussion regarding service charges on properties will is well-worth listening to as it gives a better understanding of how prices have risen and why.

Below we give a brief overview of the script if you haven’t got time to listen.

Why flat leaseholders service charges have increased

M: This morning there was an article in the BBC news about a service charge of £4,000 a year, the Building Safety Act and rising service charges.

M: Andrew, previously you have been a property manager with experience of setting budgets and we know, everyone always wants really good value for money, and it can be quite hard, especially when dealing with blocks where the majority of the time services are predominantly domestic.

Flat leaseholders don’t think about the commercial aspects and are often not open to discussion on that and we have obviously had a lot of price increases in the past couple of years.

A: Our price increases are from contractors but also the changes have been post Grenfell, with property inspections. If you live in a higher rise block, the fire doors need to be inspected yearly and the communal doors quarterly, these are charges which will go on a service charge.

Also insurance goes up every year by 10-15%. And there’s nothing that we can do as property management company. We always search for the best value, and you have to have your buildings insured.

M: Any shortfall and, whether it’s uninsured or under insured it is the liability of the freeholder of a company.  The government say, like there’s 10% inflation or something, say, in 2021/ 22. but actually, like the real world cost of things is like a lot higher than that. Like, I know, like timber, plaster materials, all that sort of stuff.

And the contractors, you know, they’re going in and it was like £4 for length, of 2 by 4  wood and then it increased to £9. So a 10% inflation is false.

M: I know, for a property that I was managing, we had the roof replaced. And in the time between the, the original quote and, and when, when we actually started the work, there was a considerable increase in the price of the OSB of the decking boards, which meant we had to take an additional collection  to actually cover that cost. In the period of  a year from the survey to starting the project.

The same thing happened with labour rates and where the building industry was extremely busy after Covid and people wanted to extend their properties it drove demand. The supply and demand situation for some of our contractors, even labourers up to the more skilled or professional, qualified tradesmen, were asking for £200 a day. This was more than a skilled person was on before the pandemic.

A: When we commissioned work and they say, yes, I’m more than happy to do that for you in six weeks – you know they have a lot of work on.

Contractors supply and demand drives up prices

M: You know, if there’s a lot of supply, and little demand prices are low but around the other way, we have seen a lot of the service charges go up quite considerably. And we do own some property in, some of those buildings as well so we are not immune to it ourselves. We have to pay service charge on our properties and that has gone up considerably. Just on one we were paying about £1,100 before the pandemic, and I think we’re now paying about £2,600.

A: As a property manager, you try and keep all the costs to a minimum. We go out and spend a lot of time looking for alternative energy suppliers to get best value and also from the builders. Our hands are tied essentially by the prices that we’re being charged.

Tips to keep service charges at a realistic level

M: So, do you have any tips, I suppose, or key things you would look for? Might be advice for other property managers when they’re setting about their budget to look for value for money?

A: I just I look for value for money. That’s the advice. Don’t take the first quote, and particularly with energy, use a reputable energy broker. If you can put a number of properties to an energy broker, you can get considerable value.

M: A bulk policy. Absolutely. And from my experience, it was always use a contractor that you’ve worked with for years and years but double check their prices against the market. There is something to be said for having good relationships with people.

I know we switched and did our clients a big favour, but then it caused us a lot of issues because the contractors were completely useless. You have to do these two things because ultimately someone has to. But you pay for that because you have to increase fees, or swallow the costs.

So, it’s it is hard, but I would say definitely looking around and making sure that the contractors such as the guy that tests the fire alarm, for instance, and the emergency lighting rather than just auto renew every time test the model. They might still be the cheapest. So broadly speaking, it might make little difference to the bottom line, but at least you’ve done your due diligence.

A: Diligence. Absolutely, and if there are more than one thing to check, or be done on a visit, save time by doing them together. For example, when the fire alarm service is done, if you’re fire alarm company that can offer a lighting check (emergency lighting and the normal lights) that will save the block a visit.

M: So being efficient or at least having the ability to be efficient. Similarly with cleaning rather than sending another company to clear out the bins if you have a cleaner that is willing to do that on a weekly basis, it will save £250 fee for having a rubbish clearance.

I always found that, people questioned the budget, but they didn’t really have a comprehension of how it was made up. A cleaner is a classic example where they would turn up and spend 45 minutes cleaning and the bill is like £45/50, for instance.

And then some people’s opinions would be I could do that for a £50 but they don’t understand that includes the van, the cleaning equipment, the insurance and the public liability. All of those things that go into the dead time in between. So if you only cleaned three buildings in a day at £150 and spent £65 in fuel and van insurance then you are only earning just above a minimum wage if you’re doing a seven hour day.

A: Explaining the prime time at AGMs, assuming you get more than a couple of people turn up, the gardening costs are another example but he’s running a business as well. He’s got employees, tax and insurance and all those things to pay.

M:  It is possible for the residents to do the cleaning and the gardening if they want to and they can use their own public liability policy to do that. But they are responsible for their own health and safety, damage, all that.

A: If someone slips over on the floor they have the right to make a claim on the policy. Sometimes this starts off really good, and then ends up one person who is doing it all.

Then eventually it all falls apart and you get left with them stopping and then know one knows.

M: You have to submit proper invoicing and then if you’re, a taxpayer you need to submit a return and pay tax on that income when we took over the block to manage we had to formalise that and asked if she was aware that appropriate insurances should be in place, and very soon she didn’t want to do carry on because it is complicated.

M: Getting back to the article, we feel sorry for the chap who is trapped in his flat because no one wants to buy it. Maybe he has trouble selling it because of the £4,000 service charges £4,000 – which to be fair seem a little high.

A: It does, unless it’s the penthouse apartment?

M: I think it’s a pretty standard apartment in a high rise building of some nature. But in that sense, there are remedial repairs to be done that aren’t covered by all the government schemes. If there’s a lot of high usage in the building and trying to build a reserve fund for a future date.

So, I think the key tip is to keep an open line of communication with your managing agent. You do have all the tribunals. We’ve gone to many courts, to argue with reasonableness of expenditure etc. and the best thing to do is to pay your bill and then argue for the reasonableness.

A: Other people will try and say it’s too much money, I won’t pay. But, if you do that, all you’re going to do is end up in court for a different reason.

M: You will end up with administration fees and charges. And then at the end of the day, if they deem that it’s reasonable, you have to pay all of that. So it’s fine that you challenge the reasonableness of a service charge but also understand that costs have risen.

For the property managers our tips include – search around, don’t just renew on the contracts and make sure you explain to people that, why the cleaner might be on £50.

Good communication with flat leaseholders is the key

A: Communications is key. If your service charge is very high and you feel it’s very high, if you have a good managing agent, then explain that. They should be quite happy to explain to you what the charges are and why. And if they don’t, then you have a very good reason to go to the tribunal about it.

M: Perfect. Thank you very much, Andrew. Pleasure.

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