Revealed – the great leasehold service charge rip-offMake Text Bigger
It’s likely that if you own a leasehold buy to let property that you have been a victim of the great service charge scam.
Much publicity goes to fly-by-night letting agents whose businesses close leaving landlords and tenants out-of-pocket – but few dare to whisper the rip-off perpetrated by managing agents.
Service charges for leasehold homes – especially apartments – are probably one of the most expensive costs for landlords. For many, they swallow any rental profits on the gap between what comes in from the tenant and what goes out to cover the mortgage and other bills.
The problem is property owners cannot visit a comparison site to find the cheapest service charges – they have to pay what the landlord or agent demands unless they can prove the cost is unreasonable.
The amount paid is generally worked out on the floor area of the apartment as a percentage of the floor area of the block, including communal areas.
So, if a 2,000 square foot apartment is in a 20,000 square feet block, the owner pays 10% of the total cost of repairs.
That doesn’t seem unreasonable until the managing agent puts out the repair to a maintenance company they own or is run by a crony.
Some industry insiders reckon leasehold property owners are paying up to £400 a year too much each on service charges – a staggering £700 million a year in total.
Many leaseholders tackle the problem in one of three ways – if the leasehold property is a house, the leaseholder can buy the freehold and take control of the property.
Flat owners cannot buy their freehold, but they can get together with their neighbours to buy the freehold of their block or form their own management company.
In effect, both options offer the same solution – the flat owners have control of the maintenance of the block and how much the work costs.
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