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Property pain Investigation ,service charges increasing rapidly with 30 % of firms increasing fees



  • The average annual property service charge in Britain is £1,863
  • The service charges for new builds are 96 per cent higher than older properties and average £2,777
  • A third (33 per cent) of management companies have increased service charges in the last two years
  • Service charges vary between £1.55 per square foot to £7 per square foot

New research by Landlord insurance provider, Direct Line for Businessre[1]
, reveals property service charges are rising rapidly with a third (33 per cent) of management companies increasing these fees in the last two years.

The average service charge or fees leaseholders pay to cover their share of the overall building maintenance, now stands at £1,863. This cost alone represents more than two months of the average monthly rental income received by landlords,
 The average UK rental value excluding London was £740pcm - this is 5.5% higher than last year (£702pcm) [2] . In addition to this, they will also have other costs to think about such as paying tax on these monies, mortgage payments, management and agency fees and any ground rent fees which are now on average £371 a year for a new build and £327 for a property pre-2016.

The service charges for new build properties, coming on the market in 2016 are significantly greater than for older dwellings at £2,777. This is 96 per cent higher than the average for an older property. Service charge levels also vary markedly between developments. One new build development coming onto the market in Croydon in 2016 will see home owners paying £1.55 per square foot in service charges, while a development in Lambeth coming onto the market in 2017 is charging four and a half times more at £7 per square foot.

There is an increasing trend for new builds to include amenities such as libraries, 24 hour concierge services, gyms and cinema rooms that is contributing to the increased cost of service charges, but also offers added value for landlords looking to invest in this type of property.

Recent moves by developers have seen more private housing stock owned by freeholders subject to service charges. Owners of freehold properties situated on private roads or private estates are being charged for upkeep of roads and gardens. In one example owners of every four-bedroom property situated on a development in Guildford are charged £900 a year for upkeep of the road and communal gardens.

Nick Breton, Head of Direct Line for Business says: “Service charges are often a hidden cost, which should be factored in when considering the affordability of a property. In some cases service charges are uncapped and can escalate rapidly. Landlords need to take into account all associated costs when purchasing a property, such as service charges, ground rent and taxes that may impact their rental yield

“Direct Line for Business’ free Mobile Landlord App can help landlords keep a track of expenditure, when charges are due to be paid and the impact on the yield of a property.”

The method for calculating service charges also varies between developments. In some cases it is a flat rate for all properties, while for others it is determined by the number of bedrooms or the square footage of a property. Service charges usually cover repairs to communal areas of a development such as windows, drainage and the roof. They may also be used to establish a sinking fund for major renovations. In some cases they are also used to pay for shared services such as gardeners, landscapers, concierge services or cleaners.

1 Researchers for Direct Line for Businesses conducted research amongst estate agents and property managements companies identifying the ground rent and service charges for over 100 developments across the UK



'I DON'T FEEL I'M GETTING VALUE FOR MONEY FROM PROPERTY MANAGER' 

Charlotte Moss, 29, lives in a flat at North Point, in Crouch End London, which is managed by FirstPort. She feels that she is not getting value for money from the property manager, saying: 'It is the general lack of ability to deal with anything in an efficient or professional manner. Every time we have an issue we have to chase an unbelievable number of times for it to be looked into. Residents have to do all the calling and emailing with a real lack or response from FirstPort, let alone any follow-up or feedback to let you know if an issue is being addressed and then resolved.'
She says examples include water damage in one of the flat's bedrooms which took nearly three months to deal with and was only resolved due to constant chasing and a refusal to pay the service charge. There was also the broken gate to the car park which was not reported by the concierge and when they did eventually fix it weeks later, they failed to let some residents know they needed a new fob so they were still unable to access the car park.
She says the bin area is often filthy with rubbish and household waste 'strewn everywhere'. Again, this is never picked up or reported by the concierge, she says. 'Unless residents make a complaint it is left for months.' 
A FirstPort spokesperson, said: 'We understand our customers’ homes are important to them and take our responsibility of looking after around 180,000 homes across the country very seriously. 
'We have a good track-record of managing developments and responding to customer queries, but we do understand that speed of response is key. We have worked hard to make ourselves more consistent in our response times and, in the last three months, have trebled the number of customers who get their issue resolved by the first person they speak to, without the need for it to be passed on for further action. 
'We recognise that during the changes some responses have been slow and we continue to improve this.' 
Mr Breton went on to blame the increased costs of service charges on a trend among new builds to include luxury amenities such as libraries, 24 hour concierges, gyms and cinema rooms.

He urged those buying a flat to factor management charges into their running costs budget, which also needs to include ground rent - which is £371 a year on average for a new build and £327 for an older property, according to the research.

It found that the typical annual service charge of £1,863 on older properties is the equivalent of twice the average monthly rent of £906, the research added.  

WHAT ARE YOUR OPTIONS IF YOU'RE NOT GETTING VALUE FOR MONEY FROM YOUR PROPERTY MANAGER?

Disgruntled leaseholders have three main options to address poor property management, according to John de Waal QC of Hardwicke chambers.
1. The ideal solution is to buy the freehold, but the flat owners may not be able to do this for a variety of reasons, such as not having the required minimum number of leaseholders in the block to buy it.
2. A step down from buying the freehold is doing a Right To Manage application where you apply to the First Tier Tribunal (Property Chamber) to deal with disputes regarding property management. The tribunal is part of the courts system and is a leaseholder friendly route for those who cannot afford to pay lawyers. It means you acquire the right to manage the block and need to set up your own company to oversee it. In reality, you'll employ another property management to do the work, which will give you more control over how the block is managed. You will need to seek advice and speak to solicitor. It depends on how hard the freehold fights the application, but the whole process should not cost more than £1,000 per flat in a block.
3. Perhaps the simplest way to deal with poor property managers is ask the Tribunal to decide whether the service charges are reasonable and for this, you will not need a solicitor. If you apply via the Tribunal, it must investigate. It can result in your monthly property management charges being significantly reduced and you can even end up with money being paid back. The leaseholder does not normally have to pay the landlord's costs. Under the terms of the lease, the management company has a schedule of works it must adhere to. You can get free advice and download the application for the The Leasehold Advisory Service by scrolling down to 'Application to the Tribunal' section and clicking on 'Application Form - Service Charge' here: www.lease-advice.org


Read more:

Leasehold Advisory Service: Free advice on residential leasehold law


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