Leaseholders take action against managing agents

A growing number of UK leaseholders are taking action against their property’s managing agents over poor service and overcharging - and many are choosing to set up their own management companies to save hundreds of pounds a year.

Leaseholders pay annual service charges to the property freeholder to cover costs such as buildings insurance, maintenance and repairs. However, cases of bad management are increasingly emerging as leasehold property owners file complaints about extortionate costs.

Last week, the largest leaseholder tribunal case was settled out of court for an undisclosed seven-figure sum. Residents of St George Wharf, a luxury riverside apartment development in London, brought the action against its landlord, St George South London Limited, over “unfair” management costs.

Details of the settlement are confidential but it is known that residents filed a list of complaints that included an allegation of inflated service charges.

Experts say the case reveals the scale of abuses within the property management industry - and the need for leaseholders to ensure their landlords or managing agents are levying reasonable charges.

Bob Suvan, managing director of Blocnet - a management company set up two years ago after the founding directors experienced their own difficulties with their managing agent - believes leaseholders are starting to demand more from agents, and expects further actions will be launched.

“Leaseholders want efficiency: they want value for their money and for their questions to be answered,” he said.

Steve Wylie, director of Urban Owners, a block management specialist, explained that leaseholders can take complaints against unreasonable charges to the Leasehold Valuation Tribunal, an independent legal body that settles disputes.

Alternatively, they can apply for the Right to Manage (RTM) - where leaseholders take over the management responsibilities from the freeholder without having to prove bad management.

To qualify, at least half of the leaseholders of the block of flats need to agree to join the RTM company and 75 per cent of the building has to be form of residential flats. Leaseholders cannot apply if the landlord is a local authority.

The Leasehold Advisory Service (http://www.lease-advice.org/), a public body funded by the Government, can provide free advice on leasehold property matters to help people understand whether the charges they are being asked for are unreasonable.

FT Money highlights the top five managing agent scams:

1. Hidden sales commissions

Managing agents will often accept hidden commission for arranging buildings insurance at blocks of leasehold flats. Some agents also take commission on building works and other services.

According to Urban Owners, like-for-like insurance premiums can be arranged commission-free, producing an annual average saving per block of £865 or 32 per cent. For one block in Notting Hill, insurance went from £11,307 under the original managing agent to £4,130 the following year, after the flat owners acquired the RTM, making a saving of £7,177.

Suvan said kickbacks on insurance policies are endemic in the market. “It’s become the norm with the big companies. We have a company policy that we never ever have or will take kickbacks,” he explained.

2. Using financially linked contractors

A large amount of complaints about managing agents has been how they frequently use contractors who are in the same group of companies, or have financial links with the agent, to carry out works on the building, irrespective of the cost or quality of the completed job.

Wylie said many companies will award contracts to the companies offering the biggest financial benefit to them rather than the best value for the flat owner.

For example, one managing agent signs up small blocks of flats for an entry phone maintenance contract at over £500 per year with one of its sister companies, even though this type of maintenance contact is rarely needed.

3. Arranging unneccesary works or charged for services that were never delivered

Managing agents frequently arrange more extensive or expensive work than is necessary to repair or maintain the property.

In one case, flat owners were quoted £80,000 for external decoration of their five-storey block by their managing agent. However, independent evaluation found that the ground floor alone required redecoration at a cost of just £6,000. “The managing agent was looking to pick up commission based on the value of these works,” explained Wylie.

Suvan said many leaseholders are also frequently billed for services that have actually never been delivered. “This is all part of the lack of transparency in how most managing agents work. From what we see from our clientbase, most people complain about how they have no idea how their money is being spent.”

4. Adding hidden charges or disbursements to their fees

Many agents charge a hefty mark-up for sending letters and correspondence, rather than simply the cost of the stamp.

One managing agent is known to charge an ‘arrangement fee’ of £3.33 for receiving correspondence, a cheque payment surcharge of £6.49 and postal charges of £14.97.

Urban Owners currently has one case going through arbitration where a block of flats was charged £50,000 worth of fees over two years.

5. Setting unreasonable contract terms

Some managing agents will tie blocks in to a contract termination notice period of twelve months, while others require a three to six months’ notice period and will still charge a termination penalty equivalent to three months’ management fees.

Experts say some will even tie blocks in for a further twelve months if they miss the contract cut-off date by one day.