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Evening Standard
Evening Standard
Business
Charlotte Lytton

Leasehold scandal: 'Why are leaseholders footing the bill for landlords' secret commissions?'

There are five million leaseholders in England and Wales, many of whom are discovering that items on their service fees — which have doubled in the past five years — involve hidden fees.

Tens of millions of pounds are being racked up in kickbacks split between brokers and landlords, according to a report from the Observer — and leaseholders are footing the bill.

My small building in London could likely be in that cohort.

After more than a decade of being overcharged by the managing agent-freeholder hybrid, we recently learned that our buildings insurance alone was coming in at double what it should cost, which only became clear when we secured the right to manage. The extent of these kickbacks is likely worse than we realise. 

“Another fellow leaseholder reports paying almost £7,000 for building insurance that should have only been at the £3,000 mark.”

I am in an online group of over 1,000 residents living under the rule of the same company, where tales of absurdly high buildings insurance costs — usually representing the largest charge on the service sheet — abound.

Another fellow leaseholder reports paying almost £7,000 for building insurance that should have only been at the £3,000 mark.

This proof of how deep this racket runs is now more depressing than shocking for anyone who has experienced being a leaseholder. Simply another wrongful rip-off to add to the pile.

During their 2019 election manifesto, the Government promised that leaseholds were on the way out. Housing Secretary Michael Gove denounced them as a “feudal system” too readily abused by landlords, who shake down powerless residents to the tune of thousands, and in some cases tens of thousands, each year.

As another vote looms, the failure of these pledges is inescapable. All that has been done — and I use the word ‘done’ loosely — is to create a watered-down bill currently plodding through the House of Lords, in which no concrete dates for change to the system, nor means of enacting its proposals, is laid out.

“By refusing to share those details, residents can’t get accurate quotes to assess the fairness of the charges, so simply pay and pay.”

Transparency over kickbacks, which Gove has called “completely unacceptable” and indicative of “a market that is failing consumers,” will be outlawed by the bill, according to the Department for Levelling Up, Housing and Communities.

To speak, if I may, for my 4,999,999 leaseholding peers: how?

It is already leaseholders’ right to request information about their buildings insurance policy from their managing agent or freeholder.

But, as I have experienced first-hand, this is usually met with a wall of silence.

By refusing to share those details, residents can’t get accurate quotes to assess the fairness of the charges, so simply pay and pay. Costs keep shooting up, and if you don’t pay, the legal threats begin.

“Even if ‘successful’, these cases can end up with agents never repaying what they owe.”

Leaseholders can apply to the First Tier Tribunal to challenge fees they believe are overblown, but this is often an expensive and drawn-out process.

It has taken us a year to secure the right to manage for our building, and seven months to secure a tribunal date for unreasonable charges followed by months of waiting for the decision.

Even if ‘successful’, these cases can end up with agents never repaying what they owe. Leaseholders may need to file a County Court case to recoup their money, which entails even more expense and stress.

The Financial Conduct Authority introduced rules at the end of December 2023 stipulating insurance firms must begin disclosing commissions received when asked by leaseholders – the same fees that earned them a nifty £80.7m over just three years.

Again, it’s not the asking that’s the issue (if you can even find out who your insurer is). It’s getting an answer, and what can be done when one is not provided.

All the while, those kickbacks mount for brokers and agents.

One leaseholder was paying 43 per cent over the odds, according to a tribunal ruling last year. The same residents were also charged three times too much for window cleaning, double for a fire and safety assessment, and nearly £500 for assorted 'works' for which no invoices ever materialised.

Add a 15 per cent management charge on top and it’s no wonder agents are fighting tooth and nail to ensure the leasehold system never goes away.

Perhaps there was a point where Gove’s promises seemed more believable than laughable, but that has long passed. Each week seems to bring new evidence of how agents are milking leaseholders, under the noses of the party that promised to stamp it out.

“How the Government sees this as anything other than downright wrong is beyond me.”

Another report in the i unearthed how some developers of new-build properties are forcing leaseholders to sign non-disclosure agreements (NDAs) as a condition of repairs being done, so those involved can never speak out about the inevitable financial mismanagement they’ll go on to endure.

How the Government sees this as anything other than downright wrong is beyond me.

As the outlook grows ever-darker for leaseholders under the thumb of dodgy agents, so too grow concerns that, Leasehold Reform bill or otherwise, the fundamentals of this broken system will remain.

Landlords will keep their various kickback-making means under wraps wherever possible, knowing that wishy washy Bill wording allows them an easy get-out. The difficulty of actually bringing anything to court continues to provide them ample protection, too.

In the absence of abolishing the whole system, as pledged five years ago, rigorous reform that leaves no room for interpretation and swift legal recourse for those failing to meet standards should be paramount - yet it is all too clear that neither are in the offing.

And so leaseholders’ grim trudge goes on, while the Government trumpets its Bill filled with half-hearted promises. Reaching the upcoming election without a single step towards change only proves how doomed leaseholders remain.

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