Fixing England’s Home Service Fee Scandal



Real Estate Law Updates

Ensuring that multi-billion pound property charges are fair and honest is not something that should be left to volunteers. Yet inadequate regulation of service charges means that an “armchair army” of angry apartment dwellers is often the only antidote to the epidemic of overcharging and error revealed by an FT investigation. Deep contract reform is needed, providing residents with transparency and a much more efficient way to obtain compensation than to take matters into their own hands.

Planned changes to tenancies, an originally feudal form of land ownership in English and Welsh law, have mainly focused on land rents – the annual fee that landowners, who legally own the property, can levy on their tenants, the tenants. This is understandable. The unilateral contracts have led some tenants to face rapidly rising land rents, absorbing much of their income while at the same time leaving them trapped in unsaleable homes; few want a house with exorbitant rents next door.

Widespread issues with service charges – fees paid by residents to property managers for services ranging from cleaning to Christmas lights – also urgently need to be addressed. Those who pay them, including tenants alongside some landowners and municipal tenants, have struggled to get an explanation for the sudden increases in cleaning costs and have been forced into protracted and costly battles to recoup their money ; many of the few people who have successfully navigated the system already have a background in law or accounting. While expanding the scope of legislation, which is slowly progressing in Parliament, will take longer, getting it right is essential.

One of the fundamental problems is that tenants in English law find themselves in an uncomfortable middle ground between landlords and tenants. As contracts grant extended long-term leases, often for more than a century, they offer a degree of security and means of accumulating wealth similar to that of other forms of property. However, tenants have the legal status of tenants and therefore have no contractual relationship with the property manager, beyond an obligation to pay the bills. The existing methods of replacing managers are time consuming and difficult, especially for those who live in tall buildings.

Eventually, rental contracts should be abolished or completely abolished. To protect other service fee payers, invoices should be verified by an independent third party. This may increase costs for residents, but will prevent exploitation. In addition, managers should have a duty to ensure transparency. Residents should be able to request itemized bills.

These changes won’t mean much without effective enforcement. Residents have challenged the charges in court, sometimes acting as their own lawyers, and have often won, but the cost makes that impossible for many, including those with low incomes living in apartments owned by the municipality. One of the many existing regulators should be given the role of investigating disputes.

The Conservatives are promoting themselves as the defenders of those who worked hard to access the property ladder. In order for this to make sense to tenants, they need to devote parliamentary time to this and other related issues, such as the cost of ensuring that new apartments comply with building safety regulations. Without such measures, many might start to question whether the party is really on the side of homeowners or, as many suspect, real estate developers.


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