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Property Management Company Fees

Volume 630: debated on Tuesday 7 November 2017

[Mr Nigel Evans in the Chair]

I beg to move,

That this House has considered property management company fees.

It is a pleasure to serve under your chairmanship, Mr Evans. I am delighted to have the opportunity to lead this debate on an issue that has affected a number of my constituents in Rochester and Strood and that has no doubt affected thousands more across the country. Over recent years, we have seen a model being used by developers where development sites are managed by management companies after the delivery of freehold and leasehold properties. A rising proportion of residents of such properties are left having to deal with property management companies when they have issues.

Some property managing agents do take the work out of owning a flat and offer great value for money for residents. Everyone acknowledges that property management fees are a standard part of owning a flat, but when people buy a freehold house on a large development, those fees are not something that always comes to mind. Management companies will typically cover repairs to the communal areas of a development, including to the windows, drainage and the roof. Often they will also cover recreational spaces within grounds, such as children’s play areas or gyms. In some cases, the fees are also used to pay for other shared services, such as gardeners, landscapers, concierge services or cleaners. Understandably, service fees can differ between developments. Fees can be a flat rate for all premises, or they can be determined by the number of bedrooms or a property’s floor space. However, some agencies can charge high fees and evidently do not necessarily offer a service worthy of the amount, even by modern standards.

Research last year found that the typical annual fee for new build homes is £2,777, while for older properties it is £1,863. For many families and individuals that is a significant added living cost, and it is understandable that residents become concerned and irritated when there is no value for money. I therefore want to use this ideal setting to highlight the impact that unjustified property management service charges have on local homeowners. A number of constituents have got in touch regarding exorbitant charges from local housing associations and property management companies for services that are simply not carried out.

In my constituency, many residents of the Chimes and the Pastures estates in Hoo are having ongoing disputes with their new property management company, SDL Bigwood. When householders on the estates bought their properties, they were informed that only when the whole of the estate was handed over from Taylor Wimpey and Bellway would they incur property management charges. Until then, Taylor Wimpey and Bellway would pay them. Unfortunately, the companies failed to communicate with residents as to when any handover would be made. In fact, residents were left completely in the dark over the reality, which was that the handover of the whole estate would no longer happen. Instead, only a few parts would be handed over. It then became apparent that SDL Bigwood tried to bring forward debts from its former business for services that residents did not see being implemented.

Currently, there is no onus on the property management company to provide any evidence of the services they are charging for being carried out. They merely need to provide end-of-year accounts long after the end of the year. Some residents face paying thousands of pounds for a backlog of fees passed on from one of the former companies, with payment demanded by the end of the year. That is all despite the estate being in surplus. However, as the huge sums are still needed in advance, and as all this is legally tied up in title deeds and TP1 property transfer papers, residents find themselves having to pay with no right of challenge. It is wrong that so many people who only want to provide a roof over their families’ heads find themselves trapped and helpless and see their money wasted.

I thank the hon. Lady for securing this debate. I recently had a case raised with me where a couple purchased a leasehold flat from a developer. Once they had completed on the purchase, they were informed that the advertised service charge was going to be doubled. They were given no explanation, and when they asked questions, the company could not explain why it was doubling its fees. Does she agree that we need to clamp down on that kind of practice? We need to tackle rogue landlords who prey on people, including a number of my constituents in Barnsley East.

I agree with the hon. Lady. I will come to some more examples from my constituency where charges are not transparent, but this debate is about leaseholders and freeholders in particular, as opposed to people who are renting their properties. That is what I am talking about today.

To give another example, one of my constituents reported that in the past financial year, their estimated service charge increased from £85 a month to £128 a month. If that was not already bad enough, the housing association, Hyde Housing, failed to get its figures ready for the April payment. As a result, the charge the individual paid in May increased by more than 100%.

The breakdown of Hyde’s figures makes for astounding reading. For example, there is a charge for “Fire safety, including servicing and inspections” of £34 a month. The building in question consists of a block of 24 flats. If all properties are charged similar amounts, the charge brings in more than £800 a month. However, the actual inspection takes just 15 minutes, in addition to the time taken for paperwork, and only occurs annually. I understand there are fire extinguishers and a sprinkler system to maintain over the years, but £800 a month seems excessive to many of the families and individuals. In addition, there are charges of around £90 a month for grounds maintenance. I am familiar with the plots around the block, and it is clear that any maintenance is minimal, and certainly worth nowhere near a value of £90 a flat a month. My constituent’s block is also paying nearly £250 a month collectively for unspecified provisions that many residents do not understand, and those provisions are not disclosed by the association.

I congratulate my hon. Friend on securing this debate. She raised the issues of uncertainty and hidden fees. Does she agree that those are exactly what frustrates our constituents? If the fees were abolished and there was a higher up-front cost in terms of the house purchase price, that would be preferable, because at least people would then know with certainty what they had got themselves into.

I thank my hon. Friend for his intervention. I completely agree. When I speak to my constituents, they say they want to be clear about the costs when buying a house or a lease on a property. Some of the management charges that are levied bring people into difficult situations. My hon. Friend is absolutely right: people would much rather have that up-front cost than the threat of the charges changing over time.

To return to the example I was discussing, it is regularly reported that simple repairs on things such as faulty lighting are not carried out and communication with energy suppliers seems to be non-existent. For instance, residents were issued a letter from E.ON informing them that the electricity for the building would be switched off. That would bring everything in the block to a complete standstill, and Hyde did not rush to the rescue. In that instance, my constituent took Hyde Housing to the Lands Tribunal, but unfortunately they met technical stumbling blocks when presenting the case, in particular around providing alternative quotations for the work involved, which no lay person can comprehend.

I will give one final example, which involves London and Quadrant Housing. It was given the right to levy service charges on all properties on the estate, which was formerly part of the Ministry of Defence land at Lodge Hill. I am sure the Minister will know it well. Another constituent has brought a grievance case to me on London and Quadrant’s totalling of the amounts charged. The final figure for each property is based on expenditure and the management fee across the estate, which is divided by the number of houses. However, residents have argued on a number of occasions that the wording in the schedule relating to the original sale of the land only gives it a right to levy a service charge where there is a benefit to the parties involved.

All bar one of the items for which charges were levied related exclusively to older properties that predated the sale of the land—for example, the blocks of flats. However, London and Quadrant tried to charge for street lamps and street cleaning, which were both undertaken by the local authority, Medway Council. Similarly, charges around sewage collection—later deemed to be out of the association’s remit—were also questioned. In fact, of the full list of initial charges, the only one that could vaguely be charged to the houses built in 2001 and 2002 was the play park on the estate, but given it is always in such a poor condition, it is rarely used.

What, then, is the management company there for, and how can residents be certain that they are paying fairly for the correct things? In that last example, some residents were so fed up that they refused to pay charges any more, and apart from their yearly statements there was no attempt to collect the money. I wonder whether that was simply incompetence or, more likely, because they knew full well that the charges were unjustified, and they would probably lose if challenged in court.

Those examples are from my constituency alone and I could, of course, go on, but it shows that something needs to change. This is an industry with too much room to rip off those with few options. The room for manoeuvre that leaseholders have to take back some control remains limited, and such action is not viable for a number of families and individuals. Ultimately, the best way to proceed if someone is having issues with their property management company is to buy the freehold. However, that may not be possible for a number of reasons, such as not having the minimum number of leaseholders in the block of flats to take over the management of the block, not to mention collective action challenges. Furthermore, as I have already outlined, the issue does not only affect leaseholders; it affects freeholders as well.

Some families and households are already struggling with rising bills and the like, which makes purchasing a freehold a more remote possibility. Those families and households are trapped under the direction and reliance of property management companies. We need a recognition of the flaws in the property management company sector when it comes to service charges. We are talking about people’s livelihoods, and in too many circumstances they are being ripped off by a service that does not respect value.

Serviced residences throughout the country are being subjected to this unregulated scandal, and with the ongoing increase in house building, more and more people will be subject to the unfair will of private companies without any course of redress. I hope the Minister has heard enough to see that regulation is needed to protect families and individuals, many of whom work hard to put a roof over their heads. This Government have a proud record of standing up for fairness when it comes to families and workers, and I hope that we can lead the way in this area.

In my constituency of Rochester and Strood, in the local authority of Medway, we face high numbers of new homes being built over the next 15 years—something that I suggest is slightly unrealistic. However, if large numbers of houses are to be built under the current model, where people can buy freehold properties and leasehold properties on large estates that are run by property management companies, the problem that we are talking about today will only become greater for people in my constituency, and all those who want to buy homes across the United Kingdom.

It is a pleasure to serve under your chairmanship, Mr Evans. I congratulate my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) on securing this incredibly important debate, on an issue which matters to her constituents and those of many Members across the House. She has highlighted a number of individual cases with organisations. As a result of the debate, they will no doubt have heard the concerns that she has very publicly raised. I hope that those organisations will reflect and communicate with her.

The Government are committed to fairness in the housing sector. We recently committed to improving consumer choice and fairness for leaseholders, which I will come on to. We are also now doing the same in the property management sector, in recognition of the growing concern about the quality of service that some managing agents provide to leaseholders, which my hon. Friend highlighted. I am aware that she has received representations from her constituents, and other Members have received similar representations from theirs. Clearly, we have to act to address those issues and create a housing market that ultimately works for everyone and has fairness at its heart.

As the number of leasehold and private rented homes in England has grown, so of course has the market for property managers. According to one estimate, annual service charges alone now amount to as much as £3.5 billion. All property agents, no matter their size or the type of property they manage—whether working with private landlords or indeed housing associations, as my hon. Friend mentioned—have a significant level of responsibility in the jobs they do. My hon. Friend is right: if one pays hundreds of pounds for a service, one expects the person providing the service to be a competent, experienced professional who will deliver what has been agreed.

Currently, however, anyone can set up a business as a property agent, even if they have no experience. Agents are not currently required to have any qualifications, undertake training or indeed be accredited, so unsurprisingly some experts believe that agents are overcharging by as much as £1.4 billion every year, with reports of poor service or even, in some cases, no service provided at all, as my hon. Friend has highlighted today. That is totally unacceptable, and I appreciate the frustration that my hon. Friend’s constituents must feel when paying service charges over which they have little or no say and then, on top of that, finding it extremely difficult to challenge overcharging or a lack of delivery.

Existing processes for leaseholders to seek redress or decide to carry out their own property management are often lengthy and complex, leaving them at the mercy of agents who are not doing their jobs or, if they are doing them, doing them pretty badly. That is why the Government are committed to doing more to protect leaseholders’ consumer rights. The housing White Paper of February this year promised to tackle abuse of leasehold—something that has struck a real chord with consumers. We saw that in the 6,000 responses that we received to the public consultation. I can confirm that we aim to respond to that consultation before Christmas.

It is also right that we now take action to raise standards in the property management sector. To that end, we have issued a call for evidence on whether we need to regulate property management agents, and what approach would have the most positive impact. In doing so, our focus is on protecting and empowering those who pay for managing agents’ services, including leaseholders. We want to make it easier for them to stop unfair fees and exorbitant service charges, and to access effective redress. We also want to make the process for removing or switching agents much easier.

With that in mind, the call for evidence poses questions about minimum entry requirements, promoting financial transparency and different regulatory approaches, such as a professional body for property agents, or perhaps a Government-established body to enforce standards and best practice. We want to hear the views of everyone who has an interest in those matters, and I am sure that my hon. Friend the Member for Rochester and Strood will take that message clearly to her constituents. The call for evidence closes on 29 November. The easiest way to take part is online, by entering the title of the call for evidence—“Protecting consumers in the letting and managing agent market”—into the search box at We will listen carefully to feedback from those who know the market best to find the right way forward.

The sector has taken some encouraging steps towards self-regulation and sharing best practice. There are a number of industry bodies who champion high standards. However, poor practice undermines those laudable efforts, so it is vital that we root it out and raise standards across the board. We want to give agents a clear and consistent framework to operate in, and leaseholders confidence in the way their homes are being managed, which will ultimately create a fairer, more transparent system where professionalism is the norm. I know that is what all Members want to see.

Question put and agreed to.

Sitting suspended.