As an industry leader committed to transparency and greater regulation, Peverel Property Management (PPM), of which OM Property Management is a part, has recently contacted the Planning and Housing Committee of the London Assembly in order to submit our contribution to the ‘Review of Service Charges in London’, a report commissioned by the Assembly in July this year.
PPM is supportive of the stated objectives of the London Assembly in their review of service charges to:
PPM’s submission from its Head of Compliance, a highly experienced property manager and Fellow of RICS (The Royal Institution of Chartered Surveyors), was sent to the London Assembly on 10 November 2011:
Thank you for the opportunity to comment in connection with the review of service charges in London. Our experience is in the private residential sector although a number of the developments we manage also have properties owned by Registered Social Landlords (RSL) or Housing Associations (HA).
Across all of our developments there will be a considerable variation in the range of services provided, the standard of service and the cost. These variations will be due to a number of factors from the age of the building, the location, the quality of the flats, the services provided, the level of service provided, and the number of flats within a building or the development.
Benchmarking of services is difficult especially having regard to the economy of scale not being available either due to the size of the development or uneconomic sharing of a service. A good example is a lift. In some developments the costs are shared by as few as 6 lessees. In another development many more leaseholders will share the cost due to the size and design of the building. One such property has 67 flats sharing one lift. The burden of cost shared by the lessees of the small property will be far greater for the same service.
The above can apply to many other categories of expenditure.
Increasingly the greater reliance on sophisticated equipment can and probably will cause future unexpected increases in service charges as equipment becomes obsolete or wears out.
Non traditional building materials will have future potential for increases in costs, although to be fair other innovations will save money e.g. UPVC windows.
Green initiatives will also have adverse affects on maintenance costs. Communal heating and power systems which are becoming prevalent again may prove increasingly expensive to maintain. The experience of flats built in 1900-1920 and in the 1930’s indicate that future problems will be faced in the distribution of heat and water and replacement of pipework. During the 1970’s and 1980’s a number of properties had communal central heating and hot water systems replaced by individual systems in each flat.
Q1. “What are the components of service charges in London, how much money is being charged and how this has varied over time?”
A. The components of service charges are repairs, lighting, cleaning, buildings insurance, health and safety costs. These may be considered core services as even the simplest or smallest of blocks of flats will incur costs on these items.
Also frequently provided are gardening, window cleaning, lift expenditure, door entry systems, car parking and costs of the employment of permanent site staff such as concierges and caretakers.
Less common but still significant are electric gates, water features, alarms systems and dedicated leisure facilities such as swimming pools and gyms, exclusively for residents.
The costs vary considerably having regard to the quality, location, number of flats and level of service.
Of the flats managed by Peverel Property Management companies, the range of average charges at a property are approximately £2000 to £5000 p.a. although there are many flats that pay below and above those figures.
Increases in service charges will often be more than RPI as the services provided are labour intensive. The increase in VAT in the last three years from 15% in 2009, to 17.5% in 2010 and 20% in 2011 has worsened the position.
Increases in service charges are not only due to rising prices but also due to increased number of repairs as buildings and equipment get older. The affects of legislation also cause increases in costs. The common areas of blocks of flats are regarded as ‘non domestic’; accordingly some legislation applies to blocks of flats but not to houses. All this comes against a background of increasing expectations from leaseholders in challenging economic times.
Q2. “What evidence is there of emerging good practice in terms of the management and the impact on the level of service charges?”
A. The RICS (The Royal Institution of Chartered Surveyors) and ARMA (The Association of Managing Agents) encourage best practice in the industry. As ARMA members, the operating businesses within the Peverel Group (including Consort Property Management), together with many other practitioners, would like to see greater Regulation so that there are common standards all practitioners adhere to. Inevitably improved practice may cause service charges to rise.
Such a process may also help leaseholders to measure their expectations with the standards provided.
Q3. “What is your assessment of whether service charges are sufficiently transparent and how those paying service charges get a say in maintenance and repair programmes?”
Transparency of service charges is a major issue and does cause disputes between leaseholders, landlords and managing agents. Leaseholders do have statutory rights to inspect invoices and supporting papers but not many take advantage of this.
One of our largest operating businesses, OM Property Management, recently won an ARMA Innovation Award for our online ‘Maintenance Updates’ service for customers. This new online service creates a vital information link between OM Property Management’s customers, its property managers and customer service staff, and its contractors. For OM leaseholders the ‘Maintenance Updates’ pages provide an online and transparent view of current maintenance work. They can view the progress of a repair from the issue of the works order to the receipt of an invoice. In between will be updates from the supplier giving dates of attendance and completion of the repair.
It also provides a history of all work undertaken to date – and gives residents a chance to feedback on completed jobs.
Our online service also provides copies of the service charge estimate for the year on which the service charges are based and then the actual service charge expenditure for the same period so that comparison can be made and any balancing charge identified. This information is also sent to all leaseholders via post as a hard copy.
All the invoices we receive are scanned and copies can be sent to leaseholders electronically on request.
There is a detailed consultation process that must be carried out before the landlord can undertake works costing any one leaseholder more than £250, and in the case of long term agreements for more than a year where expenditure is more than £100 pa.
We encourage the formation of Residents Associations so that leaseholders can have a greater say in the management of their homes.
Q4. “What are the trends in disputes over service charges, how service charges are challenged and disputes are resolved?”
The widening of the LVT jurisdiction has lead to the desired result of increasing the number of service charge cases heard.
The tribunals provide a relatively cheap way of resolving disputes although there are some concerns over the inconsistency of their decisions.
All our operating businesses are also members of the Ombudsman Service (Ombudsman Service Property) and this provides a no cost option for leaseholders to seek resolution to any poor service they have suffered.
Q5. “What evidence is there of alternative approaches to managing, determining and ways of paying service charges?”
The service charge process is governed by the lease and alternative approaches are very difficult to implement.
Even paying service charge monthly is not in accordance with most leases and in any event can lead to cash flow problems.
Service charge expenditure is rarely evenly spread during the year.
Note: The London Assembly review of service charges was published on 1 March 2012.