The "service Charge" Killer

[silver surfer]

Until recently I was renting in a large development in Kew, south west London that was well over 50% BTL. The service charges were £2000+ per annum for even the smallest two bed flat. For your money you got cleaning of common areas, security, porterage, swimming pool, gym, etc. But the management company said recently that because many landlords were behind on service charge payments they were having to suspend the cleaning services!

Imagine what would happen if interests rates rise and property prices fall, so BTL landlords were looking at capital losses as well as falling rents versus their escalating mortgage payments. If they don't like paying service charges now they'd be even more unwilling or even unable to pay them at all. Consequently services would decline, commom areas would look shabbier, maintenance would be skipped, the swimming pool would be left unheated or shut down. And as a consequence prospective buyers would be scared off and prices then fall further, renters stop paying rent in protest, and the whole thing would just spiral innexorably downwards.

Incidentally, this isn't my outlook, it's the prediction of my landlord. He's now sold up and is heading back to Hong Kong, he says there's no longer any money to be made in UK property and he saw just this scenario play out in Australia a few years back, it cost him dearly when a prestige new development turned into a sink estate (complete with squatters) within six months, and he doesn't want to get caught in the same trap again.

It made me think of all the glitzy apartment developments that have been built across the UK in the last few years, right now they're every young executive's wood floored, plasma TV'd dream. But if the service charge pampering gets cut back they could start to look very grim very quickly.

[Smell the Fear]

Until recently I was renting in a large development in Kew, south west London that was well over 50% BTL. The service charges were £2000+ per annum for even the smallest two bed flat. For your money you got cleaning of common areas, security, porterage, swimming pool, gym, etc. But the management company said recently that because many landlords were behind on service charge payments they were having to suspend the cleaning services!

Imagine what would happen if interests rates rise and property prices fall, so BTL landlords were looking at capital losses as well as falling rents versus their escalating mortgage payments. If they don't like paying service charges now they'd be even more unwilling or even unable to pay them at all. Consequently services would decline, commom areas would look shabbier, maintenance would be skipped, the swimming pool would be left unheated or shut down. And as a consequence prospective buyers would be scared off and prices then fall further, renters stop paying rent in protest, and the whole thing would just spiral innexorably downwards.

Incidentally, this isn't my outlook, it's the prediction of my landlord. He's now sold up and is heading back to Hong Kong, he says there's no longer any money to be made in UK property and he saw just this scenario play out in Australia a few years back, it cost him dearly when a prestige new development turned into a sink estate (complete with squatters) within six months, and he doesn't want to get caught in the same trap again.

It made me think of all the glitzy apartment developments that have been built across the UK in the last few years, right now they're every young executive's wood floored, plasma TV'd dream. But if the service charge pampering gets cut back they could start to look very grim very quickly.

When I sold my London flat in 04 I was very relieved to be away from the constant wrangling between tenants and the management company. The service charge had gone from 600 to 1600 over a period of 3 years. The tenants were mightily p!ssed off as it seemed the company were pulling a scam indirectly through employing maintenance firms owned by relatives or of which the management company owners were directors. The annual accounts for the building were audited by an accounting firm owned by a relative of one of the management company's directors.

Total scam.

[kingsgate]

It is fairly easy to enforce payment of service charges through the courts in the UK. I can't really see a development going downhill as you describe because of non-payment of service charges.

If it comes to it, I think that you can forfeit your lease if you just don't pay your service charge.

[Gone baby gone]

When I sold my London flat in 04 I was very relieved to be away from the constant wrangling between tenants and the management company. The service charge had gone from 600 to 1600 over a period of 3 years. The tenants were mightily p!ssed off as it seemed the company were pulling a scam indirectly through employing maintenance firms owned by relatives or of which the management company owners were directors. The annual accounts for the building were audited by an accounting firm owned by a relative of one of the management company's directors.

Total scam.

I had exactly the same experience. Due to chronic mis-management by the 'management' company and an unrealistic initial charge, ours went from £500 to around £1400 and we ended up having to pay a one off charge of £2,500 to cover essential works. We were given 3 months notice to find the £2,500 and many residents at that time (2003ish) struggled to make the payment. They originally wanted around £4,500 as a one off payment(!), but when one of the residents - who had building experience - looked into it and and found alternative quotes, the price was almost halved.

I would never buy a leasehold flat again, it's a huge con.

[Gone baby gone]

It is fairly easy to enforce payment of service charges through the courts in the UK. I can't really see a development going downhill as you describe because of non-payment of service charges.

If it comes to it, I think that you can forfeit your lease if you just don't pay your service charge.

I think you can, but one of the residents in our building had 2 years of arrears and only then were they facing legal action.

[deano]

A luxury block in the city of Southampton had so many problems that the maintenance company gave the tennants notice to go find someone else. I'm serious!.

Edited May 2, 2007 by deano

[winkie]

I would never buy a leasehold flat again, it's a huge con.

Cannot

Recommend

A

Purchase

[DaggaDagga]

I believe that leaashold flats will be the next "endowment" scandal. If this happens then nobody will want to buy them. If this happens at the same time as a general downturn then all the newbuild flats will be the worthless junk that they obviously are.

I've heard many similar stories on this website and out in the real world, both about service charges and the lease renewal fees, which can be an invisible cost of around £1000 per year. I say invisible, as you don't pay it until years later, e.g. when you need to sell it but nobody will buy it as there are only 60-odd years left, so you can't get a mortgage. I've heard of a £20k bill for this.

Perhaps they'll be bought up by councils, complete with compulsory purchase of the freehold, to use as sink estates.

This train of thought does make me wonder whether there could be a mini-boom (or a smaller drop) in the price of smaller houses if this happens, as people evacuate flats but still need somewhere to live.

[nohpc]

Service charges can be a bit of a bitch but you do get something for your money.

If you would be a member of a gym normally then you can save on your gym membership.

You get your water charges paid.

You get unnecessary but very useful luxuries like 24 hour porterage who can deal with day to day things while you're at work.

The rest of the money basically goes to the upkeep of the property.

Expensive but it is necessary for the type of lifestyle that people living in new builds expect.

[Gone baby gone]

Service charges can be a bit of a bitch but you do get something for your money.

If you would be a member of a gym normally then you can save on your gym membership.

You get your water charges paid.

You get unnecessary but very useful luxuries like 24 hour porterage who can deal with day to day things while you're at work.

The rest of the money basically goes to the upkeep of the property.

Expensive but it is necessary for the type of lifestyle that people living in new builds expect.

Hmmm, I lived in a building without a gym and water rates were not included (this is usual). Also, no porterage in my building (again, usual for the vast majority). The charge did include essential maintenance, buildings insurance, window cleaning and cleaning of the common areas. Since I bought a house (which is actually older than my flat) I have used the hoover occasionally, engaged a window cleaner for £1.50 a month, bought a mower and cut my own grass and have saved about 3 grand in the first 2 years!

My brother used to live in a period building in Clapham that did have a swimming pool. Service charge was £3K per year (would have been much cheaper to join a top notch gym) - he once opened a letter addressed to "the occupier" that was really for the owner - they were renovating the outside of the building and each owner was being asked for a cool £8K as a lump sum (in addition to the £3K service charge). Best of all - the landlord could not pass the lump sum on to my brother! Ouch! I'll bet that stung his wallet

Edited May 2, 2007 by redalert

[Rachman]

It is fairly easy to enforce payment of service charges through the courts in the UK. I can't really see a development going downhill as you describe because of non-payment of service charges.

If it comes to it, I think that you can forfeit your lease if you just don't pay your service charge.

Except that when one investor owns a large proportion of the block and does not pay, it causes massive problems - typically overseas owners (especially the Irish and Malaysians for some reason) don't pay then try to do a deal for less when the arrears run up - it really causes huge problems as the other owners do not want to subsidise the errant ones and it breeds resentment. Forfeiture of the lease practically never happens and thebig landlords get away with it.

[Landagan]

A bunch of pirates called Urbanpoint, bought the freehold on my flat. For one reason or another myself and the other leaseholders could not get our act together and take our option to buy it went up for sale.

The next two years saw spiraling management fees, increasing the yearly charge from £230 to £600. They did nothing on the place at all, no maintenance, cleaning, it was a converted Victorian town house.

I argued with them constantly on the phone. Then one day a junior picked up at the other end and said "Look mate, your troubles have only just begun, this company will continue raising the fees and that's just the beginning. I am not going to be working here for much longer, but my advice to you is to sell up now".

I didn't take his advice, instead myself and the two other owners decided to apply for the RTM. Then came a bill for £15,000 for essential maintenance work, although they hadn't even been to visit to assess. They gave us warning nad time to find other quotes which we did. Our quotes were a third of theirs, but they were ignored.

At this point I decided to cut my losses and sell, I needed a family home soon, and I didn't want to be caught up in the legal fallout. I was honest with the situation and sold below market value to an amateur developer.

Not is touch with the other owners now, but I know it all went to the courts, two years later I notice that on houseprices.co.uk that one of the other leaseholders has late last year been forced to sell for 40% below market value.

I too would never buy another leasehold property ever again.

[South Lorne]

A bunch of pirates called Urbanpoint, bought the freehold on my flat. For one reason or another myself and the other leaseholders could not get our act together and take our option to buy it went up for sale.

The next two years saw spiraling management fees, increasing the yearly charge from £230 to £600. They did nothing on the place at all, no maintenance, cleaning, it was a converted Victorian town house.

I argued with them constantly on the phone. Then one day a junior picked up at the other end and said "Look mate, your troubles have only just begun, this company will continue raising the fees and that's just the beginning. I am not going to be working here for much longer, but my advice to you is to sell up now".

I didn't take his advice, instead myself and the two other owners decided to apply for the RTM. Then came a bill for £15,000 for essential maintenance work, although they hadn't even been to visit to assess. They gave us warning nad time to find other quotes which we did. Our quotes were a third of theirs, but they were ignored.

At this point I decided to cut my losses and sell, I needed a family home soon, and I didn't want to be caught up in the legal fallout. I was honest with the situation and sold below market value to an amateur developer.

Not is touch with the other owners now, but I know it all went to the courts, two years later I notice that on houseprices.co.uk that one of the other leaseholders has late last year been forced to sell for 40% below market value.

I too would never buy another leasehold property ever again.

Timely warnings to all leasehold owners, especially flats. BTlers are not exempt and need to either tighten their belts or get out......quick.

[Its time to buy]

http://www.blagger.com/db4/company_id/2486...Management.html

It is laughable that this company even calls itself a "management" company!I have yet to see evidence of any management.All I seem to get are demands for advance service charges etc.And the invoices/statements are deliberately confusing so I don't what I'm being charged for!I believe G&O Investments and Urbanpoint are one and the same.

Could "Stokie" who took Urbanpoint to the Leasehold Valuation Tribunal please contact me?

lots of angry tennants.

I worked for Urbanpoint Property Management in there very early days. I can tell everyone that the owners of this company are honest, hard working gentlemen. They care about the properties and they care about the tenants. Sometimes tenants just don't like paying for the repairs that must be made by the property management company. I remember a building of which the council had determined needed to add fire escapes. The costs, even 10 years ago, was somewhere in the line of 20K pounds. Everyone complained, but Urbanpoint had no choice but install them. So - stop getting on the internet and complaining...your buildings must be maintained and UrbanPoint is not going to provide repairs out of the goodness of their heart. They'd go bankrupt fast. YOU MUST PAY FOR THESE REPAIRS, YOURSELF!

I now live in the USA, but if I didn't I go back to work at Urbanpoint in a heartbeat!

ex employee - hmmm...

well check out their website - it still under construction.... if they cant sort out that how on earth are they going to look after your property??????????

http://www.urbanpoint.co.uk/About.html

Edited May 2, 2007 by notanewmember

[dogbox]

Property blocks with multiple service charges in arrears tend to become unsable by virtue of the fact any new lender will consider the security insufficient, as they envisage the situation will not improve so thier asset in turn could become harder to sell if they need to reposses.

[tenroom]

Friend of mine bought flat in mansion block in Bayswater. Service charge is £3600 a year I begged her not to go for it. I mean, another £300 a month on top of a large mortgage. She went into arrears with the service charge and had to make arrangements to settle the amount owing on a separate agreement PLUS paying the new demands as they come in.

Still, the gaff's worth £70K more than she paid in '05 . . .

[Gone baby gone]

Still, the gaff's worth £70K more than she paid in '05 . . .

Until any buyer spots the £3.6k service charge.

[nohpc]

Until any buyer spots the £3.6k service charge.

Does seem extortionate by I presume this development is built for the uber rich rather than us mere mortals. Must be London and if so it will sell, quickly and for maximum asking price.

[Landagan]

http://www.blagger.com/db4/company_id/2486...Management.html

It is laughable that this company even calls itself a "management" company!I have yet to see evidence of any management.All I seem to get are demands for advance service charges etc.And the invoices/statements are deliberately confusing so I don't what I'm being charged for!I believe G&O Investments and Urbanpoint are one and the same.

Could "Stokie" who took Urbanpoint to the Leasehold Valuation Tribunal please contact me?

lots of angry tennants.

I worked for Urbanpoint Property Management in there very early days. I can tell everyone that the owners of this company are honest, hard working gentlemen. They care about the properties and they care about the tenants. Sometimes tenants just don't like paying for the repairs that must be made by the property management company. I remember a building of which the council had determined needed to add fire escapes. The costs, even 10 years ago, was somewhere in the line of 20K pounds. Everyone complained, but Urbanpoint had no choice but install them. So - stop getting on the internet and complaining...your buildings must be maintained and UrbanPoint is not going to provide repairs out of the goodness of their heart. They'd go bankrupt fast. YOU MUST PAY FOR THESE REPAIRS, YOURSELF!

I now live in the USA, but if I didn't I go back to work at Urbanpoint in a heartbeat!

ex employee - hmmm...

well check out their website - it still under construction.... if they cant sort out that how on earth are they going to look after your property??????????

http://www.urbanpoint.co.uk/About.html

There you go ... and how many Urbanpoints are there out there?

As a normal guy it's very stressful and difficult to take these people on.