ECONOMY

‘Obscene and scandalous’: residents hit out at soaring UK service charges

Even with six pairs of noisy nesting geese living outside his window, it is the rising service charges that keep Michael Savell awake at night.

The 71-year-old, a retired balloon shop owner, is the lead agitator in a conflict between residents of a sleepy development for over 55 year-olds in south-east London and their landlord Optivo, one of the UK’s largest housing associations with 90,000 residents across the buildings it owns.

On a sunny morning, Savell, his wife Maureen, and several neighbours — an eclectic group including Mohan Patel, a former civil engineer; Maria Avino, the founder of an arts charity; and Michael Burgoyne, a former British consul to Naples — congregated to explain why they are withholding money from Optivo in protest over its handling of their service charges. 

A system with few rules

Their dispute is symptomatic of wider failings in the UK housing market arising from the lack of regulatory oversight of service charges, an issue that affects millions of people from leaseholders, to housing association tenants, shared ownership homeowners and freeholders. 

A Financial Times investigation involving testimony from more than 80 residents across the country has revealed widespread errors in how service charges are calculated and passed on to residents. 

The central concern among those affected is that unscrupulous or incompetent property developers, managing agents and housing associations are imposing high and unjustified charges for services that often never materialise, in some cases causing severe financial hardship. 

Errors are often exposed and rectified only after residents lobby for information, comb through receipts and chase refunds. 

It is an exhausting and at times infuriating process that can take years and is often navigable only for residents with professional backgrounds in areas such as law and accounting. For residents without such expertise, challenging service charge errors is routinely described as a Herculean task.

Those who have successfully clawed back refunds believe the mistakes are at best a result of ineptitude. Others wonder whether sometimes there might be a simpler explanation: fraud.

Optivo overcharging by £20,000 a year for gas

Savell first began scrutinising the service charge accounts for his building — Halton Court, which provides independent living for over 55s in 170 apartments — in 2015. At the time the building was managed by Viridian Housing, which merged with another housing association to become Optivo in 2017. 

Savell and his wife, who like most of their neighbours are social housing tenants, have seen their service charge soar from £2,500 a year when they moved to the development in 2013 to £4,400 in the latest financial year. They describe the increase as financially crippling and say they can only afford it because they recently claimed housing benefit for the first time. 

The couple believe the service charge has been hugely inflated by errors. The first major anomaly Savell spotted was that his building had been incorrectly billed £20,000 for communal gas in 2016, yet residents pay for heating individually. The error was repeated in the 2017, 2018, 2019 and 2020 accounts.

Halton Court, home of Michael and Maureen Savell © Charlie Bibby/FT
‘Obscene and scandalous’: residents hit out at soaring UK service charges
Some noisy Halton residents — nesting Canada geese © Charlie Bibby/FT

After Optivo admitted to the gas overcharging, it agreed to pay back £143,000 to Halton Court residents. Savell estimates another £183,000 has been repaid to residents in his block — just over £1,000 per household — relating to service charge errors and compensation from 2016 to 2018.

But he also believes another £150,000 is owed. He is in the process of taking Optivo to the first tier of the UK’s tribunal court system, the best legal route for challenging service charges. He has chosen to represent himself after receiving a quote for legal fees of up to £45,000. 

Savell believes if the overcharging in his block of flats alone is hundreds of thousands of pounds, there is potential for hundreds of millions of pounds to have been wrongly billed to residents across the UK. The most recent government estimates, from 2014, suggest up to £3.5bn a year is paid in service charges in England and Wales, although industry experts believe the true figure is much higher.

“I think it is obscene and scandalous,” Savell said of the overcharging.

Optivo said: “We strongly refute any implication that these accusations apply to us and . . . it is our priority as a social housing provider to ensure our charges are proportionate and fair.”

It also said it had inherited service charge problems following the 2017 merger that were “quickly rectified” and that it had conducted a “full investigation” of the gas overcharging in 2020. Optivo added that it hired an independent accountant to conduct a “thorough review of charges” last year, which confirmed its accounts were “robust”. “We are incredibly sorry for any distress caused by the charging inconsistencies previously made,” it said.

Cleaning costs rise after L&Q ‘remeasures’

Many other housing associations — which are not run for profit and often house low income or vulnerable tenants — have been flagged to the FT by residents concerned about poor accounting practices and repeated overcharging.

L&Q, which houses more than 250,000 people across south-east England, is one example. 

Louise Vaughan, a charity worker who purchased a flat from L&Q in Camberwell, south London, in 2012, took issue with the housing association in February when she received a letter warning residents that service charges were about to rise by a fifth because of higher cleaning costs. L&Q blamed the increase on the fact it had recently received “more accurate measurements” of the building’s communal areas. 

Vaughan was immediately concerned. She describes her building, Roffo Court, as a “no frills” block with concrete floors and exposed brick walls “without a plant to water or a picture to dust”. And yet cleaning costs had already surged from £193 per flat in 2013 to £1,053 for the forthcoming financial year. This contributed to her service charge more than doubling since 2013 to more than £4,000 a year.

She asked L&Q to provide her with the new measurements. The housing association said the February letter had been sent in error and that the communal areas had not been remeasured, although a change in the cleaning contract in 2018 had resulted in higher costs. 

She remained troubled by this response. Through social media research Vaughan found another building in her development that received a nearly identical letter setting out higher service charges after remeasurements. A nearby L&Q development, Harvard Gardens, also received the same letter. 

Meanwhile residents in Prospect East, an L&Q development in east London, had queried why their cleaning costs had increased 83 per cent in a year and were similarly told by the housing association that it had “received more refined building measurements” leading to “significant changes” in cleaning costs. 

The Roffo Court residents’ association contacted L&Q in May raising a “serious formal complaint” about the housing association’s accounting practices. L&Q’s response raised further confusion, stating cleaning costs had risen after a 2017 contract change as well as a remeasurement exercise that year, contradicting its earlier response to Vaughan. 

She remains alarmed by the situation, which she sums up as a “weird magical growing buildings” scandal that in her view reflects at best “total incompetence or a terrible form of negligence”.

She said: “You should not be allowed to get away with sending letters to people about remeasuring communal areas to solicit more money from them when that has not been done.” 

‘Obscene and scandalous’: residents hit out at soaring UK service charges
Halton Court resident Mohan Patel is part of the group unhappy about service charges © Charlie Bibby/FT
‘Obscene and scandalous’: residents hit out at soaring UK service charges
Maria Avino, the founder of an arts charity, is also protesting © Charlie Bibby/FT

L&Q sent three different responses to questions from the FT. The final response stated it was not “confident in the accuracy of the information and data” supplied by its service charge team. It could not confirm whether any buildings had been remeasured. An internal investigation is ongoing and the issue has been escalated to L&Q’s executive group.

A spokesperson said: “These complaints have shown that we have made some serious, unintentional errors in our communication around service charges with those buildings mentioned. We’re very sorry for the confusion and concern that our letters to residents have caused. We recognise that this is not good enough.” 

One Housing Group’s mysterious missing receipts

One Housing Group, which is landlord to more than 35,000 people in south-east England, has similarly come under scrutiny. The FT reviewed statements from a dozen OHG residents who all had similar complaints: rapidly rising service charges; poor maintenance of their developments; and concerns they were being billed for non-existent services such as cleaning, gardening and security.

Roger Edwards, a music lawyer, purchased a flat in a building managed by OHG in 2015 in the leafy south-west London borough of Wandsworth. Although he describes his home as “lovely”, his dealings with OHG significantly soured his experience. 

Edwards said he and his neighbours began scrutinising the paperwork supporting their service charges in 2016 and uncovered numerous errors, resulting in a total of £3,000 being refunded to leaseholders. The following year, a similar inspection resulted in £12,000 being returned. In 2018, OHG offered each household £75 compensation before the residents finished their inspection of the accounts. In 2019, OHG agreed to return another £14,000 to residents. 

Edwards describes these inspections as “arduous, stressful and frustrating”. He is particularly angry about OHG’s handling of questions about one maintenance job, which cost leaseholders £1,393.92 although they were never supplied with relevant receipts. 

OHG eventually agreed to refund leaseholders in full for the work, but Edwards remains troubled by its refusal to provide receipts. “OHG are at best institutionally incompetent,” he said. “There is no legitimate reason for refusing to provide original invoices and receipts.”

He also fears problems may often go undetected. “If the level of overcharging that we uncovered in our small block is anything to go by, [property companies] are ripping off their customers, and taxpayers, on a gigantic scale,” he said. “It is an absolute disgrace and a licence for freeholders and unscrupulous managing agents to print money.” 

OHG said it had recently improved its administration of service charges, including introducing more frequent audits. It added that providing receipts could be difficult when building materials were purchased in bulk.

Its chief operating officer, Chyrel Brown, said: “Our service charges are based on reasonable costs incurred and there are clear mechanisms for leaseholders to query or dispute them. In the event that errors are made, we endeavour to put them right and review our processes to avoid the error being repeated. We apologise for any errors that have occurred.”

A bit of a stink at Peabody

In the urban east London district of Limehouse, Clare Richards has been waging her own battle against her housing association — Peabody, which oversees 72,000 homes across south-east England — since 2017.

Richards, who works for a pension fund, has similarly had yearly arguments with Peabody about her service charge, resulting in thousands of pounds of refunds to residents in her block. In the latest financial year, Peabody agreed to refund residents the sum of £5,282 after it wrongly attempted to charge them for scaffolding, roof repair work and graffiti removal. 

Another frustration has been trying to get it to repair a leaking sewage pipe beneath her flat, which every summer attracted swarms of flies and maggots and caused a terrible stench in her home. Richards sent Peabody more than 90 emails about this problem since 2017. It was finally resolved in May but only after she resorted to emailing the housing association’s chief executive, her local MP and escalating her complaint to the housing ombudsman. It remains unclear who will pay the bill for the necessary repairs.

Clare Richards
Clare Richards has had ongoing problems with a leaking sewage pipe under her flat in Limehouse, east London © Charlie Bibby/FT
Limehouse flats
Richards sent Peabody more than 90 emails about the problem since 2017 © Charlie Bibby/FT

Richards is desperate for the tortuous bureaucratic process of dealing with Peabody over repairs and overcharging to change. “We as leaseholders don’t recover our time or inconvenience, and Peabody doesn’t get a penalty for its ‘errors’. The whole thing is massively time consuming, but if you just let them put it all through on trust then you’re almost certainly getting fleeced,” she said. 

Peabody said the overcharging for scaffolding and roof repair work was an “administrative error” that was “quickly rectified”. The problem with the sewage pipe at the estate had been “extremely complicated”, it said, adding: “We have apologised that we were not able to resolve the situation more quickly.”

Peabody said: “We know that errors and inconsistencies between estimated and actual service charges are incredibly frustrating for people and we are working hard to improve our processes internally to prevent mistakes.” 

High prices for high-end Aviva Christmas lights

Service charge errors are by no means unique to housing associations. The FT also interviewed dozens of leaseholders with private landlords who have painstakingly unpicked their service charge accounts and uncovered huge mistakes. 

Residents in a luxury central London development owned by Aviva, the FTSE 100 insurer, say they have identified more than £2m of potential service charge errors over a five-year period. Two members of the development’s residents association, who requested anonymity, said Aviva has already agreed to refund leaseholders more than £300,000 after they conducted a forensic study of service charge accounts. 

Some of the service charge errors border on the obscene. Residents found the estate costs included £200,000 for Christmas lights over a three-year period — a cost Aviva admitted they should have consulted on in advance. Security costs were wrongly apportioned between retail and residential units, while the management fee charged to leaseholders was incorrectly calculated for several years. 

Aviva said it refunded leaseholders after “historic service charge errors by the estate’s managing agents were identified”, and that a new residential managing agent would conduct a “full review” of these charges. 

It added: “While we do not agree with the [resident association’s] calculation of further refunds that may be due, to ensure a fair outcome for all parties, we will be making an application to the First Tier Tribunal to rule on issues where we can’t reach a resolution.”

Finding a different way 

All of those interviewed criticised what they see as a broken system that results in individuals — from housing association tenants reliant on benefits to owners of luxury flats — being routinely overcharged without any consequence for those responsible. 

The two main legal routes for tackling unjust charges are also problematic. The first — replacing managing agents through “right to manage” rules — is a complex, costly process that is often only achievable in small blocks of flats where residents can easily collaborate.

The second — challenging charges in the courts — is even more expensive, with residents often quoted tens of thousands of pounds for legal representation. 

Ways of resolving the problems could include establishing an independent regulator to monitor service charges, or making it mandatory for service charge accounts to be independently audited. Both options would likely raise costs for residents, but are widely accepted as a cost worth paying.

In the absence of regulatory change, the system will continue to rely on individuals wearily scouring invoices and hounding landlords for answers. But this also breeds injustice: society’s most vulnerable are least equipped to question these charges.

Back in south London, Savell says his problems with service charges have taken their toll. “It has taken a huge amount of time and given me a lot of sleepless nights. I am doing the vast majority of this on my own, it is a bit wearing, and it should not be like that,” he said. 

But that does not mean he is going to give up. “I don’t want to make life difficult for anyone, I just want things to be correct.”

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