Is your managing agent ripping you off?

Published by Emma Lunn on 15 September 2014.
Last updated on 15 September 2014

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Once you've bought a property, it's not just paying the mortgage, council tax and utility bills you have to worry about. Owners of certain types of property can be hit with a raft of other charges.

Flat owners, whether the property is leasehold or share of freehold, will have to pay "service charges" for their share of the upkeep of the communal parts of the building.

Owners of some freehold houses don't escape, either - in many cases they'll have to pay fees of several hundred pounds to the developer to alter or extend their property even if they don't need council planning permission.

Service charge: flats

Leasehold ownership of a flat means you own the flat but not the building or land it stands on - that's owned by a separate 'freeholder' or 'landlord' which may be an individual or a company.

The freeholder is obliged to maintain and, if necessary, carry out repairs to the communal parts of the building such as the roof, stairwells, gutters and gardens. In most cases, the freeholder will employ a managing agent firm to do the legwork in the running of the building. The agent will work out what work needs to be done, when, and by whom.

However, it's the leaseholders who foot the bill by way of annual service charges. The fancier your building is – for example, if it has a gym, swimming pool or lift – the more you'll have to pay.

Neither freeholders or managing agents are regulated and have free reign to subcontract work as they see fit, often to other companies they own. As a result, leaseholders frequently complain about rip-off service charges.

As well as regular service charges, flat owners also face ad hoc bills for "major works" such as internal or external decoration. Major works bills can be thousands or tens of thousands of pounds, so it's no surprise that complaints about these bills are common too.

However, there are rules under the Commonhold and Leasehold Reform Act that freeholders must stick to when issuing bills. Chris Macartney, associate solicitor at Bishop and Sewell LLP, explains: "Service charges must be reasonable and correctly demanded. If they are not correctly demanded, the tenant can withhold payment until they are. If a lease specifies an 'on account' payment in advance, that amount must also be reasonable.

"There is an obligation on freeholders to consult when they intend to either carry out major works that will cost more than £250 per leaseholder or if they intend to enter into a qualifying agreement to provide services for a term of more than 12 months."

On top of service charges and major works bills, leaseholders will often also have to pay the freeholder money if they want to alter their property or sublet it to tenants. When it comes to selling the property, there will also be charges for transferring the lease to a new owner and answering questions posed by the buyer's solicitor.

Some blocks of flats are 'share-of-freehold', which means flat owners will each own a share in a freehold company which they will run themselves. This set- up gives flat owners more control over expenditure and how the building is run, so this type of property is generally more desirable (and expensive). Many share-of-freehold developments employ a managing agent to do the day-to-day work such as collecting service charges and paying bills, but with owners retaining control over decision making.

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Disputes

Leaseholders can take disputes with freeholders or managing agents to the First Tier Tribunal Property Chamber (previously called the Leasehold Valuation Tribunal), which has the jurisdiction to decide whether or not service charges and other fees are reasonable and payable.

However, some critics claim tribunals can be daunting and expensive for leaseholders up against freeholders with expert legal teams. Even if they win a case, leaseholders can often end up paying the freeholder's legal costs, which can often legally be added on to future service charge bills.

Also, if a freeholder "tries it on" by inflating routine or one-off maintenance costs, the tribunal can only determine the reasonableness of the charges and order for them to be reduced. It can't levy a penalty on the freeholder for trying to exploit leaseholders or compensation for the stress this may cause them.

Service charges: new build estates

Service charges on new-build leasehold flats are commonplace but if you buy a freehold house on a new-build estate with shared services or communal areas, you may also have to pay service or "estate" charges. For example, the estate might have an electric gate, perimeter fence, private roads, grass verges and trees.

When freeholders buy their house, they will sign a legal document called a deed of transfer explaining the contribution the homeowner will have to pay towards the cost of maintaining the estate.

In most cases, a managing agent will be employed by the developer to collect the service charge and organise maintenance.

On some developments the deeds may impose certain restrictions on what homeowners can and can't do to their house without permission, so it's important buyers read this before proceeding with a sale.

The most common restrictions include external decorations and alterations, although some estates will also have rules banning satellite dishes and parking on the roads. When it comes to getting permission for alterations, there will be a fee to pay.

One Moneywise reader, (who didn't wish to be named) was shocked to find there were a number of fees he had to pay the managing agent to build an extension to his own property on his own land.

He bought a new-build freehold house from Barratt Homes in Brighton and wanted to build an extension into his garden.

"Just to apply for permission costs £224 plus VAT. Then the managing agent wants more money for solicitor costs to prepare a formal licence for alteration, even though I'm altering my own property (and I don't even need planning permission because it's a permitted development). It also might want additional fees to come and inspect the property," he says.

When he challenged the charges with the managing agent, he was told it was "common market practice" to charge for consent to alter a property and that the agent considered its costs to be reasonable. Mark Sandall, joint managing partner at property expert Andrew Granger & Co, says it's important to know where you stand from the beginning when you buy a new-build house.

"These kinds of arrangements, like having rights of way on your land, are quite common, and as long as the property search has been done properly, it should be clear on the title documents and they should be flagged up to you, together with any covenants on the land you will own yourself, well before you sign a contract to buy a property," he says.

"Far from being a negative, many people choose to buy into the communal living lifestyle, and arrangements such as shared electric gates and common land are part of that. The lesson is do your homework before you buy."

Despite lobbying from the Association of Residential Managing Agents (Arma), owners of freehold homes can't take a case about estate charges to the First Tier Tribunal Property Chamber in the same way that leaseholders can when disputing service charges. This leaves them with little option than to try to reach an agreement with the managing agent or estate developer directly.

"You should complain to the managing agent in the first instance, if one's been appointed. If the agent is a member of Arma, you will have the right to complain to an independent ombudsman," says an Arma spokesperson. "But remember that the managing agent reports to the directors of the management company. If the agent is following lawful instructions, then it might not be at fault."

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Still need to know how long a

Still need to know how long a management company have to produce year end accounts?What is the legal time limit by law?

I asked Emily Fitzpatrick,

I asked Emily Fitzpatrick, head of leasehold enfranchisement at Hart Brown solicitors about your query.  Her response is below:

 

There is no legal time limit by which management companies (or landlords) must provide year-end service charge accounts. The time limit is very often prescribed in the leases (although some leases just refer to “as soon as reasonably practicable”).

 

However, section 20B of the Landlord and Tenant Act 1985 has an important effect on this.  A landlord or management company cannot recover, from lessees, the cost of a service charge item, where the lessee has not been notified of that cost within 18 months of the service charge item being incurred (usually the 18 months runs from the date the landlord or management company was invoiced although this is not always the case). 

 

Landlords/management companies usually notify the lessees of the fact that a service charge item has been incurred by serving the year end accounts.  If the year-end accounts are not served within six months of the year end, the landlord/management company potentially starts falling foul of this “18-month rule” and may not be able to recover some or all of the service charges for the year in question.

 

There are however ways round the 18-month rule. Landlords/management companies can serve a section 20B (rather than the full accounts) notifying lessees of the expenditure. Further, if the amount of money demanded on account of the service charge for the year in question exceeds the value of any invoice which might otherwise fall foul of the 18-month rule, then the landlord/management company may still be able to recover the charge.

 

Ultimately, the lessees have a right to ask the court to order that the service charge accounts be produced (depending on the terms of the lease it is likely that the allure to provide a year-end account within a reasonable period of time is a breach of covenant) but that is of course expensive.  If leaseholders are faced with late accounts every year, they might want to consider whether they qualify for the right to manage and take over the management themselves.

Some estate management

Some estate management companies are outright crooks who charge absurdly high fees for routine paperwork. It is long overdue that proper consumer legislation is applied to this sector of trade. Without an effective ombudsman with proper teeth these companies make their prices up as they go along and it would be no surprise to me to learn that a cartel is operating here. If they set their office paperwork charges comparably to similar industries then one might be less angry but you would imagine them to be international lawyers or brain surgeons instead of intermediaries in the property market.

This entire business sector

This entire business sector is stacked in favour of the estate management companies with no just and proper protection with vigorous enforcement for the tenants to ensure these greedy, and often desperately inefficient, companies don't get away with their rampant overcharging.

our Managing agents have

our Managing agents have indicated that our Service charges have to be paid annually, that they can no longer allow us to pay monthly by direct debit. After 13 years paying by d/d is this permissible?

Since a new managing agent

Since a new managing agent took control of the flat I supposedly own ( leasehold)
They have doubled the service charge and served a section 20. They charged far more than needed to decorate the exteria of th building and said it was being re tendered( which is wasn't)
I want to know when something is going to be done about this daylight robbery on home owners.

From many, many instances

From many, many instances both in my personal experience and as reported by thousands of other leaseholders it is very evident that estate management companies' charges are excessive for the degree of service provided.
There are so many complaints at every level of charging as to beggar belief. 'Google' your your management company using the search term "Criticism and reviews of( 'my estate management company's name')" then be prepared to be shocked at this piratical field of business activity. Legislation of and the enforcement of the way in which these companies work is lousy for the leaseholder and great for the crooks. Crooks is not an overstatement. We are cash-cows for the estate managers and they milk their tied clients dry. No UK government has ever really tried to tackle this issue in a meaningful way. Such legislation as there is is weak and not accessible to all. To cap it off big-time many of these crooks are registered outside the UK for 'tax minimisation' i.e. evasion under dodgy legal protection. Time for a major change. Who is with me on this one?

i totally agree with you. Our

i totally agree with you. Our queries ,complaints and repair needs are constantly ignored. By The Guiness Partnersip. The staff that they employ are totally incompetent and no one who answers the phone ever phones back within the promised time frame. It is a scandal. Win gleeson

I've just been handed a bull

I've just been handed a bull for ~£200 consisting of Audit and Accountancy Charges, Repairs and Maintenance and a Management fee, but the Repairs and Maintenance fee is £0? can they really charge me £200 to manage nothing? This is coming from my managing agency and I am a leaseholder on a small flat (house split in 2).

I have just become a Director

I have just become a Director of our (all freehold) property management company - which manages the communal areas of unadopted roads of a new build development of 41 houses (no flats). We have 5 streetlights each with its own meter box and we are apparently paying £750 pa for.

The actual management is done by a 3rd party who charge over £2500 annual management fee before their maintenance company does any work.

Thinking of going alone .... Has anyone done this and how is it done please?

Hello there,

Hello there,

I purchased a property 8 months or so ago and own a third of the freehold of a block of flats (3 flats). We have a management company that look after the property of who I am finding my patience is wearing out. it has taken me a little while to get my head round the situation with how the leasehold/freehold company works, with it needed to be held by one person or business and in our case a business. This will seem common sense to most I concede.

So the problem is, there is some works to be done costing almost 15K, split amongst three of us. now the work was in talks of being done when I bought the property so I knew that the issue would come up, however since paying the money I have had someone round to quote for the same work to be done and they came up almost 7k cheaper.

when I explained this to the management company they quoted me section 20......everything was set out beforehand etc....but it is only since actually understanding how the management company work and footing the bill that I did some digging. my naivety, my fault?

Essentially I want to know can I sack the management company? I own the freehold (part) and employ them to look after the property and feel they are not providing a reasonable and honest service. Clearly I am not going to ask my own management company this, and was just after some friendly advice.

Thanks, Matt

I have a leasehold for an

I have a leasehold for an apartment. I asked my managing agent for a copy of my building insurance. When I told them it was because I was renewing my mortgage, the managing agent told me that my solicitor needs to send them Notice along with their fee to receipt the Notice. Is this common practice? Do I need to notify my managing agent that I am renewing my mortgage and pay them for the benefit?