London leaseholders pay service charges 25% higher than national average

Leaseholders in London are paying an average of 25% more in service charges than the rest of England and Wales, new data has shown.

Rates across the two countries have increased by 51.7% since 2018, 37% of which came between 2018 and 2019.

Hamptons, which published the research, said the sharp rise in 2018 “predominantly reflected the large number of fire safety measures which were put in place in the wake of the Grenfell Tower disaster”, such as waking watches or structural works which were not paid by either the government or the developer.

Giles Grover, co-lead of the End Our Cladding Scandal campaign group, said he does not believe the figures “paint the full picture of the misery ordinary people in residential buildings have faced in recent years”.

The average service charge in London currently sits at £1,792 per year, more than £300 higher than the £1,431 recorded for the whole of England and Wales.

According to Hamptons, this is partly due to the higher cost of living in the capital, but also reflects the higher densities and often taller buildings with more amenities.

Across England and Wales, blocks of 20 or more, which constitute almost half of all flats, cost an average of £2,606 each year, 99% more than in the smallest blocks.

“Higher service charges here typically reflect the more complex nature of larger buildings alongside the additional service being offered in larger blocks, such as a gym, concierge and communal grounds,” the research states.

LondonWorld recently spoke to two London leaseholders who bought separately using the shared ownership scheme. Both said rapidly rising service charges were among the unforeseen issues which have impacted them since purchasing their homes.

Harry Scoffin, co-founder of Commonhold Now, an anti-leasehold campaign group, said that while the Hamptons data is insightful to both leaseholders and government, he believes it understates the true extent of the problem “by including developments under resident control with share of freehold and right to manage, where service charges will typically be more transparent and affordable”.

Mr Scoffin continued: “But most importantly, the data is gleaned from point of sale. We are aware of too many leasehold flats where fire safety works or general service charges are too high for buyers and even struggling to go at auction. Some fire safety condemned flats have been off the market for years and have faced spiralling service charges in the interim.”

He added he and the rest of the team at Commonhold Now “strongly believe” recent service charge hikes are connected to “the fundamentally anti-consumer leasehold tenure and the fact that leaseholders of flats generally do not have control over their costs, buildings and service providers”.

“They are locked into monopolies,” he said. “Consumer confidence will never return to the flats market in England and Wales for as long we have the costly and grossly inefficient leasehold system, which is an outlier in the world and renders flat owners captive consumers. With mortgages spiralling, England’s 3.5 million flat leaseholders simply cannot afford further inflated service charges from freeholders and their crony contractors. We need commonhold for control and real homeownership.”

Mr Grover from End Our Cladding Scandal agreed that hefty increases are not likely to be a thing of the past, with issues continuing to drive up costs including soaring buildings insurance premiums.

"We also note that this research appears to not include instances where ‘building owners’ are able to retrospectively charge leaseholders for costs that exceed prior-year service charge estimates, which is an increasingly common occurrence and potentially adds hundreds of pounds to each individual service charge account,” he said.

“The report also fails to recognise the impact of the building safety crisis on building reserves, which may have been steadily built up over time but have now had to be thrown down the drain just to stand still and avoid prohibition of our homes.

“As any volunteer director of a resident-managed building will tell you, all costs that can be reviewed have been revised downwards; however, the bulk of service charge bills include charges which we cannot influence, whether buildings insurance, huge communal electricity costs or management fees levied by agents, which are often contractually required to keep pace with inflation.”

David Fell, lead analyst at Hamptons, said: “While recent falls in the cost of some building materials and energy costs should start feeding through into lower charges for residents, it won’t happen overnight.

“Commercial contracts for communal utilities are exempt from the price cap with many freeholders signing fixed commercial agreements at higher prices, meaning some leaseholders will have to wait to see the benefit of falling prices.”

A Department for Levelling Up, Housing and Communities (DLUHC) spokesperson said: “All service charges must be fair and proportionate as we are determined to protect and empower leaseholders to challenge unreasonable costs.

“We have already made significant improvements to the market – ending ground rents for most new residential leases and announcing plans to make it easier and cheaper for leaseholders to extend their lease or buy their freehold.

“Qualifying leaseholders in buildings at least 11m tall can no longer be charged to remove unsafe cladding with thanks to the Building Safety Act. Any outstanding invoices for historical cladding costs are void and any landlord, building owner or agent who seeks to enforce them could be committing a criminal offence.”