Assembly calls for review of “opaque” service charges regime

1 March 2012

A new report from the London Assembly today highlights issues within the service charges regime more than half a million leaseholders in the capital are subject to and calls for a change of approach.

An investigation, led by Steve O’Connell AM on behalf of the Assembly’s Planning and Housing Committee, prompted a high level of public interest[1], with many leaseholders highlighting problems with the dispute resolution process and a lack of transparency.

Leaseholders in London now pay more than half a billion pounds in service charges every year.  The number of disputes has increased by more than 50 per cent[2] and thousands more leasehold properties will be built in London over the next ten years - prompting growing pressure for reform.

Highly charged’ recognises there is little immediate prospect of further legislative reform[3], although some feel that this may be necessary in future.   In the meantime, the report sets out a number of actions that can be taken to make the present leasehold system operate more equitably. 

The lack of transparency that pervades the system ranges from leaseholders being unclear on what they’re paying for, to a perception that some charges – particularly for insurance – involve excessive commissions[4].

The report calls on private landlords and managing agents to make contract procurement and bills more transparent, with key stakeholders like ARMA and RICS setting an example of good practice. 

Improved consultation – which is beneficial to both leaseholders and landlords – is recommended, with the private sector urged to learn lessons from public sector landlords, which tend to have more comprehensive consultation processes.

Steve O’Connell AM, who led the investigation, said: “Problems have dogged the service charges regime for many years.  In some ways it’s an archaic and opaque system and many leaseholders are tearing their hair out with frustration.

“Some people would like to see leasehold done away with altogether, but failing that we must make sure that the system we have is as fair as possible.

“With disputes on the rise and many more leasehold properties in the pipeline it’s critical that all the agencies involved, from central Government down to the leasehold tribunal, look at ways of improving the transparency and equity of service charges.”

The investigation showed that when disputes arise, leaseholders can feel disadvantaged by taking on landlords who may have unlimited resources or large legal teams.  To address this, the Leasehold Valuation Tribunal is asked to review their processes to rule out any unfairness associated with leaseholders conducting their own cases.

Further, the report calls on the Government to look at making mediation a compulsory first step of the dispute resolution process to help leaseholders avoid potentially costly court cases altogether. 

It also appears from our review that buyers rarely consider the obligations to pay service charges when purchasing their property and need access to far better information if problems are to be minimised.  Here conveyancing solicitors have a role in providing leaseholders with more information up front, the way public sector landlords like local authorities have to.

Notes for editors:

  1. Over a hundred organisations and individuals provided written views including 30 landlords in the social rented sector 16 leaseholder organisations and nearly 50 individual leaseholders.  In all, over 700 pages of evidence and views were submitted to the review, and the report draws on much of these facts, opinions and examples.  As well as holding meetings with DCLG, the LVT and Camden Leaseholders Forum, a meeting was held in public where a range of landlords, both public and private, managing agents and the Government advisory service LEASE were asked for their views on what leaseholders had told us through the first stage of evidence gathering.  Appendix 3 of the report lists all those that contributed to the review.
  2. Service charge disputes in London increased by more than 54 per cent between 2005 and 2010 and the London LVT caseload increased relative to the rest of England.  The London region’s caseload is about 4,000 per annum, of which about 1,500 are service charge related.  The remaining cases will concern issues such as enfranchisement and lease extension.
  3. The Committee welcomes the Government’s intention to keep the issue under constant review and to assess whether there is evidence that reform of leasehold legislation is required.  The Committee recommends that the House of Commons Backbench Business Committee recommends a debate on the need for leasehold reform if any of the current e-Petitions reach the required number of signatures.  See Section 8 of the report for more details.
  4. There have been some recent LVT decisions on high profile cases that illustrate the nature of these concerns.  For example: In September 2011 the LVT awarded St George Wharf (Vauxhall) leaseholders £1 million to recover “management charges stretching back over a decade, as well as the company's practice of employing its own subsidiaries to provide CCTV and insurance services.” In November 2011 the LVT awarded Charter Quay (Kingston) leaseholders £185,000 and criticised the landlord for entering into contracts with related party companies and taking excessive insurance commissions.  The LVT determined that the landlord must repay 75 per cent of 2009 management fee (and 50 per cent for 2008) and that insurance commissions for the landlord be reduced from over 30 per cent to10 percent.
  5. Steve O’Connell AM, Member of the Planning and Housing Committee, is available for interview. 
  6. As well as investigating issues that matter to Londoners, the London Assembly acts as a check and a balance on the Mayor.

For more details, please contact Dana Rothenberg in the Assembly Media Office on 020 7983 4603/4283.  For out of hours media enquiries please call 0207 983 4000 and ask for the Assembly duty press officer.  Non-media enquiries should be directed to the Public Liaison Unit, Greater London Authority, on 020 7983 4100.