Are you being served?

©Chris Wormell

As you walk out of the lift and into reception, the concierge asks if there is anything you need. The options are endless – from room service, to making the beds, taking your dog for a walk or having your plants watered.

This is not a hotel – it’s a block of residential apartments, but it is typical of the ever-higher levels of service being built into prime London properties to cater for the predominantly international buyers who are active in that market. Whether from New York, Russia or China, they are almost certainly used to a high level of service and they want the same set-up in London.

“A lot of buyers will have several homes around the world, so it is key for them to have the ability to lock up and leave, knowing that everything is being taken care of,” says Sami Roberts at Knight Frank. “The service charge means that if they buy in that building or development, they know the property will be secure and maintained while they are away.”

Service charges are common in most major cities, but compared with New York, the cost of London service charges – and the level of service provided – can appear quite low. “Historically, UK buyers have been rather tight about paying service charges, being a nation who naturally live in houses and prefer to have control over outgoings – but this is now changing,” says Hugo Thistlethwayte, managing director of property and relocation agents Prime Purchase.

So how much can you expect to pay, and what are you likely to get for your money? Ben Bradshaw, buying consultant at The Buying Solution, says charges for prime London property can vary from £1,000 per year, if it’s a small building that is self-managed, to £100,000 per year in “a new exclusive building that offers everything from a top hat-wearing chap at the door, to being able to organise a private jet”.

Generally, the fees include insurance and maintenance of lifts, wages for porters, security, concierge staff, caretaker, communal heating, hot water, air conditioning systems, and the running and maintenance of gyms and other leisure facilities.

“The highest cost tends to be for staff, so where a building has 24-hour porterage, the individual service charge is likely to rise by 50 per cent when compared with a building that has porterage during the daytime only,” says Noel de Keyzer, at Savills’ Sloane Street office.

The charge should be based roughly on the size or square footage of an apartment, says Richard Osborne-Young, director at Jones Lang LaSalle. “So the larger the apartment is, the more the owner will have to pay. In decent upmarket developments, buyers should expect to pay between £7 and £10 per sq ft but this will vary with what the building has to offer.”

On top of the usual services, some management companies will offer extras such as cinema rooms, personal assistants, valet services, mooring charges for boats and staff who can book theatre tickets, flights, and tables at the best restaurants.

Often, there is also what is known as a “sinking fund”, which is a charge that is made in addition to (but usually collected at the same time as) a service charge and is set aside to pay for future major works. For example, owners might be asked to pay an extra £1,000 or £2,000 per year into a fund that is built up over time to pay for works to the building such as new lifts or redecoration of the common parts, rather than being asked to stump up thousands of pounds when these works need doing.

“This is usually the sign of a well-managed building – though admittedly it does benefit people who intend staying put for a long period of time rather than those who will only stay for a year or two,” says Martin Bikhit, from Kay & Co Premier Management.

The costs will vary greatly between properties. At the very top end, for example, One Hyde Park, a new, prime central London development, has annual service charges of £14 per sq ft, or £150,000 for some apartments, rising to £350,000 for the penthouse. In return, purchasers get access to a private gym, spas, secure underground parking, and 24-hour security and room service from the Mandarin Oriental hotel restaurant next door.

At 60 Pont Street – a new development just round the corner and a five- minute walk from Harrods – the service charge starts at just £4.50 per sq ft. Meanwhile, Henry Moore Court in Chelsea, marketed by Aylesford, offers a subterranean car park, access to a private gym and full concierge service for properties on sale from £4.5m at a service charge of £8 per sq ft.

Perhaps because of huge variations in charges, these levies can be contentious, with some leaseholders complaining about inflated fees, surprise bills to finance large-scale building works and the creaming-off of sinking funds. The worst scams involve falsification of invoices for work and huge mark-ups on buildings insurance.

Bikhit says: “When we have been called in by dissatisfied residents to take over the management of buildings, we’ve seen managing agents charging extortionate fees that push up service charge levels way beyond what they need to be; buildings being badly maintained and works going unsupervised, resulting in the finished job being so poor that it had to be redone; poor communication and lack of responsiveness from managing agents.”

Critics say that challenging a property management company or freeholder through a tribunal can be legally demanding and personally exhausting. But there are lots of resources now available to assist leaseholders, from government-funded independent bodies and campaigning groups through to commercial organisations that can help oust existing property managers.

But just because a service charge is high, that is not grounds for a challenge alone, warns Trevor Abrahamson of Glentree Estates. “It is a discussion often had with houseowners who, when moving to apartments, balk at service charges since they are all combined and look much bigger. I remind them that if they do the same aggregate process on their houses without certain vital facilities, the figure will also be high.”

Unsurprisingly, no one likes paying service charges but they are essentially for the successful running of a building. “Provided people feel they are getting value for money and they can see exactly where their money is going, they tend to be happy to pay them,” says Bikhit. “It is only when we see buildings that have excessively high service charges for no apparent reason that buyers get put off.”

The more expensive the properties within the building, the less concerned people tend to be about paying higher service charges, it seems, provided that they feel they are getting value for money. “As long as the charges can be backed up, there is a proportion of the market willing to pay for a turnkey solution to have all the potential headaches of home ownership covered by someone else,” says Rob Jones Davies of buying agents Middleton Advisors.

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www.middletonadvisors.com

www.glentree.co.uk

www.knightfrank.co.uk

www.prime-purchase.com

www.thebuyingsolution.co.uk

www.joneslanglasalle.co.uk

www.savills.co.uk

Lucy Warwick-Ching is the FT’s Online Money editor

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How the costs compare

Residents in top-end developments around the world are willing to pay extra to have household staff and concierges at their beck and call. The scale of these service charges will differ depending on which development and on the country or jurisdiction in which they are located, says Mark Harvey of Knight Frank.

“Such differences will arise from the labour costs, employment laws, health and safety obligations,” Harvey says. “Other than the direct cost of employing staff and security, there may also be mandatory regulations such as the use of lifeguards at the pool.”

In some countries, insurance cover may be higher due to the type and age of a building, which means the replacement costs will be higher. The age of a project or building will also affect sinking fund contributions, which will take account of potential future upkeep costs.

Noel de Keyzer, a director at Savills’ Sloane Street office, points out that London service charges are lower than those in New York. But, he adds, when compared with European cities such as Paris, Madrid, Rome or Lisbon, London service charges are on average higher.

“One important note to make about central London blocks of flats, when compared with their continental European counterparts, is that the majority of well-managed buildings have realistic reserve funds,” says de Keyzer. “This means that when London flats need to be decorated every five or seven years, the majority of the cost of these works comes out of a reserve fund.”