OFT to investigate rip-off leasehold charges
The Office of Fair Trading is to investigate the leasehold sector following complaints that property management companies routinely over-charge leaseholders.
Forget letting agents and landlords. The really scandalous part of the property industry is the murky world of freeholders and managing agents.
Ask anyone who owns a leasehold flat and they’ll have a horror story to tell you about managing agents, whether it's overinflated bills, promised work not being done, or spurious demands for cash for routine paperwork.
But finally it looks like something might be done about this part of the property sector, where five-figure bills can turn up on your doormat without warning but with payment terms of 28 days.
The Office of Fair Trading is now looking into this area, and wants to hear from people who can shed some light on why the management of leasehold homes in England and Wales isn't working well.
How leasehold works
With a leasehold property, rather than technically owning the property, the flat owner or “leaseholder” simply has the right to own, occupy and use it for a long period. The land the building sits on and the building itself is owned by a landlord or freeholder. The lease is an agreement which sets out both sides’ rights and responsibilities.
Leaseholders normally pay a ground rent to the freeholder as well as service charges for the upkeep of the communal parts of the building and buildings insurance. Freeholders, in turn, employ managing agents to do the work for them
It sounds fine in theory, but freeholders and managing agents are only in the business for one thing: to make money off leaseholders.
Compare mortgages with lovemoney.com
One rip-off after another
I owned a leasehold flat for 12 years and it was one rip-off after another. But the main issue was always the service charges – an annual bill for the upkeep of the building including cleaning, maintenance and insurance.
If you or I were shopping for these services, we’d only do work that actually needs doing and shop around for the best deal. But managing agents operate in a completely different way.
The freeholder/managing agent decides what work should be done and who by – it might be another company within the same group, their friend, or anyone else they fancy. But it’s the leaseholders who have to pay for it.
The managing agent will also charge a percentage fee on top, so they have no interest in keeping costs down.
Even when leaseholders have paid over the odds for work to be done there’s no guarantee it will be done properly; leaseholders frequently complain of sub-standard work by the contractors picked by managing agents.
Are you getting the best deal on your home insurance?
Price fixing
For certain types of work freeholders and managing agents are required by law to carry out a tendering process and collect quotes from different companies for the work, including any recommended by leaseholders themselves.
But one of the biggest property groups in the country has admitted price fixing during the tendering process. Shockingly it has been let off any financial penalty. The fact that it was the OFT which let the company off makes me wonder whether it will be any harsher on other companies that exploit the system when it completes its investigation into managing agents.
The OFT found that Peverel, which manages 200,000 properties across the UK, systematically rigged tendering processes to supply alarm systems and door entry services so that its subsidiary firm Cirrus Communications Systems would win.
Cirrus colluded with Peter O'Rourke Electrical in York, Owens Installations in Dorchester and Glyn Jackson Communications in Leeds to ensure that other bids for work would always be higher.
The OFT identified at least 65 tenders that were affected by the collusive tendering arrangements, with a combined value of about £1.4 million. However because Peverel owned up to the practice in 2009, Cirrus was immune from fines due to the OFT’s “leniency policy”.
Cirrus' partners in the price-fix scam were fined a total of £53,410, but because two of the companies have gone into liquidation, most of the penalties will not be paid.
Leasehold valuation tribunals
Under the Commonhold and Leasehold Reform Act 2002 leaseholders who feel they are being charged over the odds by managing agents, or that they are getting a poor service from them, can take them to a tribunal.
Previously this was called the Leasehold Valuation Tribunal but its name changed to the First-tier Tribunal (Property Chamber) earlier this year, as we explained in First-tier Tribunal: where to go if you're in dispute with your freeholder.
However, many feel that these tribunals are heavily weighted in favour of freeholders and their expensive lawyers. As if that wasn’t bad enough, some leases contain clauses that mean if you take your freeholder or managing agent to a tribunal and you win, the freeholder is allowed to add their legal costs on to future service charges bills.
So even if you win, you lose, as you’ll be paying your own legal costs and the freeholder’s too.
So it’s good news that the OFT has currently got an eye on this part of the property market. But whether it will stand up to freeholders and their bully boy tactics remains to be seen.
What have your experiences of freeholders and managing agents been? How would you like to see the OFT tackle the issue? Let us know in the comments box below?
Compare mortgages with lovemoney.com
More on property:
Five reasons you should never buy leasehold
My leasehold property nightmare
Why you should extend your lease now
First-tier Tribunal: where to go if you’re in dispute with your freeholder
Most Recent
Comments
-
The problem with leasehold flat ownership is that one does not actually own anything (except the lease document). The owner has the right to reside in the property at what should be a rent of practically zero for the term of the lease. The leasehold system was devised to provide landowners with an endless income stream. It works like this. If you own 99 houses, and sell one per year on a 99year lease, then you and your successors can sell one house very year in perpetuity, because one lease reverts to the freeholder each year. What a spiffing wheeze! I own a flat which stands on its own piece of land and I own both freehold i.e. it's a bungalow. If something breaks I repair it. Much cheaper. I believe that it is better to avoid flat ownership wherever possible. Better to rent one.
REPORT This comment has been reported. -
One more thing to add. When we sacked the old service management company was because they also were rigged in their tendering system. For instance they gave a contract to a company for the door entry system that is 20 years long but the system never works. We are now in the process to anulling that based on the apalling service. We (the group of leaseholders who took action) never even considered the tribunal, we just went straight to hiring a new service agent and instructing them to give notice to the old one. I remember they did try to create problems but we had chosen a new service management agent with a good legal office so they handled the issues neatly as the old agents were so rigged they wouldn't even stand in a tribunal anyway. Now that we are also in the process of selling the service management company told us the will waive off their fee to issue the reports to the solicitor in lieu of the time and committment we invested. I'm not saying that all will do that, but being active will give you leverage to negotiate some savings therefore is, another reason in taking interest in being a director for the "Owning" company.
REPORT This comment has been reported. -
I agree that there are service management companies that rip you off however what many leaseholders are not aware is that these can be sacked and replaced. A service charge company works FOR YOU. Not the other way around. In the development where my husband and I live we had the same problems. Fees rocketing services apalling. A group of us leaseholders got together and researched suitable companies and we came down to 4 then invited them to pitch. Once we agreed on the best they were appointed and the other one sacked. So, get to know your neighbours see if they have the same concerns and make a move. It's really that easy. The best way to get the service you want out of your service management, is to register yourself as director of the "Owning" company so that you can really have a say. Last year for instance the company wanted to increase their premium. The problem was that in 2012 their service had not been as good as the previous 2 years because a few people came and went. So I refused the £300 increase and they had to take it off. That money spread over 96 flats wasn't much but to me it was matter of principle.This year they have gone back to the service we expect so we are happy. When there are works to be done I am offered 3 options to valuate and choose from so if leaseholders want to have a say they can and this is how to do it. Being a director doesn't take much of your time for us we catch up with the property manager every 3 months on email go over status and accounts. The benefits are far higher than the effort required and at least you know really how your money are spent. Service management companies can be a rip-off but often is because leaseholders don't care. If I look at my case I'm the only person out of 96 flats who cares even if there are other 2-3 directors they never respond. Yet many leaseholders complain about their service agents. Dear leaseholders the ball truly is in your court. Score!
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
29 December 2013