London Assembly damns property management racket

A London Assembly report into leasehold service charges published today is a devastating attack on the stealth charges that are rife in leasehold and it urges the property industry to clean up its act.

Referring to “opaque” service charges regimes at numerous London developments, the report can also be read as veiled criticism of Housing Minister Grant Shapps, who has rejected measures that would give leaseholders further protection.

The report acknowledges the role of the Leasehold Knowledge Partnership by referring to both the £1 million settlement at St George’s Wharf, where Peverel presided, and the devastating Leasehold Valuation Tribunal ruling at Charter Quay, in Kingston. Both cases are extensively covered on this website, which is quoted.

The LA report estimates that more than 500,000 London leaseholders pay service charges and that these amount to more than half a billion pounds in service charges.

The number of leasehold disputes has increased by more than 50 per cent and with thousands more leasehold properties to be built over the next ten years there is “growing pressure for reform”.

‘Highly charged’ recognises that there is little immediate prospect of further legislative reform, although some feel that this may be necessary in future.

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.

The report calls on private landlords and managing agents to make contract procurement and bills more transparent.

It urges the Association of Residential Managing Agents and the Royal Institution of Chartered Surveyors to set an example of good practice.

During the inquiry ARMA was criticized for shielding bad practice, which is why many London managing agents decline to join the organisation.

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

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.
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.

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