Which? investigates leasehold chargesFlat owners faced with various fees and charges

26 October 2011


Leaseholders are often faced with high service charges

A new Which? Money investigation has highlighted the fact that many leaseholders face perceived overcharging by managing agents. 

There are 1.8m leasehold properties in the UK and flat owners are losing out to the tune of £700m a year because of excessive fees and hidden costs contained within their service charges.

A lack of transparency and no independent regulation means there’s very little pressure on these agents to offer leaseholders a fair deal.

The insurance puzzle

One of the main gripes of leaseholders is that they think they are overpaying for their buildings insurance as part of their service charges. We’ve unearthed examples of leaseholders saving up to 60% on their insurance premiums by cutting out the middle man and arranging their own cover.

This might suggest that managing agents could be taking a hidden commission for arranging buildings insurance for blocks of flats. Using a particular insurer or broker will benefit the managing agent and their ‘cut’ will be added to the policy cost with no transparency.

Even if managing agents aren't taking a cut of insurance premiums, at the very least they are failing to get a good deal for leaseholders.

What you can do

The key weapon for leaseholders who find themselves in a dispute with their managing agent or landlord over service charges is the Leasehold Valuation Tribunal (LVT). If you feel your service charges are unreasonable, your buildings insurance is overpriced or the quality of services provided is poor, the LVT can arbitrate if you can't reach an agreement through negotiation.

The other option open to leaseholders in dispute with their managing agent is to exercise their 'right to manage' (RTM) - ousting the agent and handing the management contract to a new company, or even setting up their own company to take management into their own hands.

Leaseholders can set up the RTM company without the landlord's consent and there is no requirement to prove mismanagement by the landlord. They do, however, have to secure the participation of at least 50% of qualifying tenants in a block of flats

Time for action

The London Assembly's Planning and Housing Committee has launched an investigation into the nature of service charges in London. Their review, due for publication in December, will examine how service charges are determined and whether they are fair.

Paul Davies, analyst at Which?, said of the investigation: 'The Office of Fair Trading has looked into aspects of this market in recent years, but we are concerned that serious problems remain and we will make sure that the Department of Communities and Local Government is made aware of our findings.'

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