Why is my service charge so expensive?
This question is at the top of many people’s minds as they’ve just been asked to pay their service charge bills for the second half of the year – and the answers commonly given by managing agents are often very different from what flat owners themselves think. So what is the real reason that service charge bills seem to rise every year?
If you ask your managing agent, chances are they will point to the Service Charge Index from the Property Institute, which highlights that some bills have gone up by as much as 50% over the last few years. They cite huge rises in utility and insurance costs, as well as price increases for just about every service provided for a block. Leaseholders, on the other hand, often feel that “greedy” managing agents are to blame.
The real reason for price increase is actually somewhere in between. We all know that inflation has risen rapidly in the UK and everything is now more expensive than it used to be; this applies to your service charge just as much as it does to your weekly food shop and for any repairs and maintenance that you organise for your own flat. We also have to consider the impact of new health & safety requirements which can really drive up bills, but that is not the full picture.
Instead, are “greedy” managing agents to blame? In our experience, a more likely explanation is that the managing agent is actually being lazy. How often do they put maintenance contracts out to tender to ensure the best prices? Or do they stick with the same contractors year on year, and turn a blind eye to above-inflation price rises simply to make their own lives easier? Are they conducting a full market scan when looking for insurance, or simply renewing with the same provider? For one building that we recently took on, we were able to reduce maintenance costs by 30% and insurance by 40%, proving that savings are still possible even in the current economic environment.
The final question is whether greed plays any role here – and sadly the answer is that it may well do. Many leaseholders are shocked to learn how common it is for agents to take commission on works and contracts they arrange. Whilst not currently illegal, in our view this is highly unethical and represents a huge conflict of interest.
Are “greedy” managing agents to blame? In our experience, a more likely explanation is that the managing agent is actually being lazy.
If you are concerned that your managing agent may be taking commissions and other ‘under the table’ payments, you should ask them to disclose this to you – and to help make your point you can point them to the Service Charge Residential Management Code from the Royal Institute of Chartered Surveyors (RICS). All managing agents are supposed to adhere to this code (although many seem to ignore it), and Section 3.6 states that it “is best practice to declare any other sources of income and related income or other benefits including commissions arising from the provision of services.... You should declare what services are provided for the income received”.
Citing the RICS code will make it harder for the managing agent to avoid answering your question truthfully.
In short – it is reasonable to expect that your service charge will increase over time, but the question you need to ask is whether your managing agent is really doing the work to get the best possible value for you and your neighbours. Ultimately, if you aren’t happy with the way the budget is being handled it may be time to start looking for a new managing agent. If you live in London, we’d be delighted to talk to you.