Leasehold Service Charges: A Growing Financial Burden
A recent BBC investigation has revealed that leaseholders are facing significant increases in service charge fees, with an average rise of £600 per year over the past five years. In some extreme cases, service charges have increased by over 400%, creating financial strain and potential selling difficulties for property owners.
The leasehold system in England and Wales, dating back to the Middle Ages, allows leaseholders to buy the right to live in a property for a fixed period. Leaseholders typically pay fees to freeholders or managing agents for services like building insurance and maintenance, with charges covering repairs to roofs, foundations, windows, and communal areas.
Currently, there are over 4.7 million leasehold dwellings in England, representing 19% of the housing stock. London and the North West have the highest proportions of leasehold properties, with 36% and 27% respectively.
Service charges are calculated based on estimated annual costs, with landlords providing a statement of actual expenses at year-end. If costs exceed the estimate, leaseholders may be charged a “balancing charge,” while underspending results in a credit toward future payments.
The system has drawn criticism from many, including former MP Peter Bottomley, who argues that leaseholders are being exploited. Freeholders and managing agents counter that they are simply recovering legitimate costs driven by rising energy, insurance, and material expenses.
Recent legislative efforts aim to address these concerns. The Leasehold and Freehold Reform Act introduced rules for standardizing maintenance costs and requiring detailed expense breakdowns. Additionally, the government has announced plans to transition to a “commonhold” system, where residents own the land beneath their building, potentially becoming the default tenure by the end of the current Parliament.
Leaseholders facing unreasonable service charges have several options:
1. Request a detailed breakdown of costs
2. Inspect accounts and receipts within six months of receiving a cost summary
3. Challenge charges through a first-tier tribunal (in England) or leasehold valuation tribunal (in Wales)
A service charge demand must include:
– The landlord’s full name and address
– A summary of leaseholders’ rights and obligations
Grounds for challenging service charges include:
– Excessively high charges
– Incomplete or poor-quality work
– Lack of transparency in spending
– Charges not specified in the lease
Over 125,000 people have sought advice from the government-funded Leasehold Advisory Service in the past five years, indicating the widespread nature of these concerns.
While the government continues to explore reforms, many leaseholders remain frustrated with the current system. The proposed changes aim to provide more transparency, fairness, and protection for property owners, but the transition may take time.
