Most leasehold homeowners consider service charges unfair, research finds

26 April 2021 | Investment

Most leasehold homeowners consider service charges unfair, research finds

One of the biggest frustrations for leasehold homeowners – aside from factors like doubling ground rents and a sense that they don’t really, properly own the home they’ve purchased – is the amount spent on service charges.

So it’s no surprise that new research from property firm Keller Williams UK has revealed that most leasehold homeowners consider such charges unfair, with a lack of transparency around how they are spent also a major issue.

As well as ground rents, service charges are paid by some leaseholders to cover the cost of maintaining the building in which their property is found. In addition, they can also be charged by the owner of a building for any work required to maintain the value of the property.

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In theory, there is no cap on what can be charged, although the owner or landlord must prove the cost is justified in line with any work that is conducted.

Typically, service charges are used to cover the ongoing upkeep of a building with multiple residences. This includes but is not limited to the cleaning of communal areas, heating the building, staff costs such as a concierge, building insurance, maintenance and repairs, and groundskeeping.

The cost tends to vary quite significantly on a regional basis, with Keller’s research showing that the average service charge will cost leasehold homeowners way more than a thousand pounds in London (£1,900), the South East (£1,301), the East of England (£1,182) and the South West (£1,121). In the North East, it averages around £650, a still not insignificant amount of money in a part of the country with lower wages and fewer employment opportunities.

Service charges can often be hefty, but some argue they play an important role in maintaining leasehold homes and the buildings in which they are located. But Keller Williams’ research shows that the vast majority (74%) of leasehold homeowners don’t think it’s fair to charge them. 

That said, the research suggests this could be down to how their money is spent, rather than the principle itself of paying to keep the building in good condition.

A massive 96% of the leasehold homeowners surveyed by Keller said they would like to see more transparency on how their service is calculated and why they are paying the required sum. 

“Service charges are an integral part of maintaining the wider community areas and standards of living in many leasehold buildings and so it’s quite surprising that so many leasehold homeowners believe them to be unfair,” Ben Taylor, chief executive of Keller Williams UK, said.

“Of course, this attitude seems to stem from a lack of transparency on how they are spent, rather than having to pay them in the first place.”

He added: “I think many appreciate that their service charge could increase should there be a substantial maintenance job required. However, this friction point between leaseholder and freeholder could be greatly reduced by placing an emphasis on educating and informing leaseholds as to how their money is being spent.”

The survey of 1,203 leasehold homebuyers (who have purchased in the last six months) was carried out by Keller Williams UK on April 8 2021. The survey was carried out by consumer research platform Find Out Now.

Do you think it’s fair to charge service charges for the upkeep of leasehold homes?

Answer

Respondents

No

74%

Yes

26%

Do you think there should be more transparency on how service charges are charged and spent?

Answer

Respondents

Yes

96%

No

4%

Table shows average service charge by region

Location

Average service charge (2021)

London

£1,900

South East

£1,301

East of England

£1,182

South West

£1,121

North West

£944

West Midlands region

£894

East Midlands

£860

Yorkshire and the Humber

£824

North East

£649

Source: Keller Williams UK

This post has originally been featured in Property Investor Today.