Under the headline “Does it add up?”, The Sunday Times exposed ever escalating service charges in an excellent, well researched article by journalist Hugh Graham published yesterday.
Property buying agent Paul Bailey was quoted saying that ever escalating service charges are under-mining capital values in prime London sites.
“It does not matter to the billionaire in the penthouse, they can afford it,” Mr Bailey is quoted. “But for the tenants lower down, it can become incredibly expensive.”
Martin Boyd, of LKP, said that it was “not uncommon” for developers to underestimate service charges so as not to scare off buyers.
Once the freehold is sold off it is all too frequent for the freehold and the management to be under the same ownership.
“Over-charging is part of the process,” one veteran managing agent was quoted. “They find as many ways to make money as possible. They get creative with their invoices.
“And landlord-controlled managing agents are becoming more prevalent.”
The case of Charter Quay is re-examined, which is chaired by Martin Boyd, also a trustee of LKP.
It won back £500,000 in overpaid service charges to the Tchenguiz organisation (County Estate Management), and the residents have now bought the freehold (unaccountably for more than £2 million less than the Tchenguiz organisation had valued it).
Sir Peter Bottomley reference this issue at the Leasehold Advisory Service, questioning how professionals could have gone along with such a valuation, which would of course have made this asset more valuable as security for further loans.
The article also turned its attention to the poisonous dispute at Canary Riverside, a prime Canary Wharf site with a five-star hotel in situ.
The freeholder here is John Christodoulou, a Monaco-based property tycoon who owns the Yianis group.
The property tribunal found the site to be very poorly managed and agreed to appoint a court-appointed managing agent: ie one accountable to the court for the site.
Having lost at the lower tribunal and the lower tribunal, and been refused appeal, Mr Christodoulou is challenging this with a judicial review. There has been constant legal wrangling since the case.
Indeed, the case was up before the courts again today.
An unnamed resident – as 110 members of the residents’ association were threatened with libel proceedings at one stage by Mr Christodoulou’s litigation solicitor David Marsden, the anonymity is understandable – was quoted saying:
“The law is stacked against leaseholders. It is also hard to get all the lessees together. A large number of the flats are buy to let, and we could not get in touch with the owners.
“It is worth fighting for, as it is actually a great place to live – the views and location are great.
“But I would never buy leasehold again. It is a nightmare.”
Related posts:
Legal arms race as Canary Riverside freeholder seeks judicial review
Sunday Times reports Taylor Wimpey ground rent scandal, as executives meet leaseholders
‘No other law so blatantly allows the wealthiest to rip off those less so,’ says the Sunday Times of leasehold
Canary Riverside freeholder told to co-operate with court appointed managing agent
Battle for Canary Riverside resumes after court appointed manager steps down
‘If I fail to offend anyone, I will do it next time,’ Bottomley tells appalled leasehold professionals at LEASE annual conference
About Peverel recently carried a story in their news section about the increasing practice of “Lowballing” This is where managing agents deliberately underestimate the true cost of the service charges to gain a management contract. This is a direct benefit for the developer as it helps sales, but as ever, it is once again the hard pressed leaseholders who end up paying the price.
Richard Murphy has just published a new book on how tax havens undermine the real economy (https://www.versobooks.com/books/2410-dirty-secrets). It’s likely highly relevant to leasehold given the propensity of UK freeholders to use offshore tax havens to aid in their machinations. These are not just about lowering their tax liabilities but sidestepping the law on first refusals when transferring control of freeholds.
Yes, the UK resident taxpayer who isn’t living in a trust fund controlled property (Mr Goldsmith, erstwhile candidate for mayor, has a selection of such properties to choose from) is at a huge disadvantage. First, in having to pay more to compete for property purchased by offshore owners treating London property as an investment. Second, in being ripped off on service charges which are mere bagatelle to the people who have bought with stolen money.
And that’s not all.
Guess who is liable for the shortfall if the Nigerian government official who has bought a property in London with “borrowed” money fails to pay the service charges? Other leaseholders of course.
Middle class Conservative voters have been bribed with inflated property values for a long time, but making London uninhabitable for the teachers, nurses and others will not end well. Sweeping and imaginative reform is needed. That includes cleaning up the UK’s tax havens and ending their role in the abuses surrounding leasehold.
Paul,
You are right to point out that London is becoming uninhabitable for teachers, nurses and others.
Given the role of Property Manager in East London is advertised at a wage of 27,000 pounds, I wonder how many Firstport employees could afford to live on a development managed by Firstport?
Excellent points, from both Michael and Paul.
“Once the freehold is sold off it is all too frequent for the freehold and the management to be under the same ownership.”
“…over charging is part of the process…and landlord controlled managing agents are becoming more prevalent.”
Government intervention is urgently required to regulate what is now an out of control leasehold sector. Proposals for self- regulation, whether through LEASE and/or ARMA, are meaningless as both organisations are tainted by association and lack the credibility and clout necessary to initiate reform.
Leasehold abuse through the rampant “over charging” practices of the unscrupulous Rachmanist villains engaged in this sector is FRAUD. Moreover, the use of threats, intimidation, and harassment against gullible and vulnerable leaseholders (particularly the elderly) are the simple tools of this extortionate trade, which because of the sheer scale involved warrants immediate investigation by appropriate criminal authorities.= followed by prosecution.
Alec, I have a share of Freehold Flats in a conversion) Managed in house for 25yrs until re,actively recently. The current directors of our Freehold company are worse than useless and the ‘Managing Agent’ who used to be a Peverel Hench person has run rings around them. ‘Ring the bell, give me the money’!! I have recently reported the agent for Fraud. The Irregularities in the accounts are so amateur as to be laughable. I have threatened with forfeiture for not laying ridiculous undue sums. I told them and their lawyer to ‘Put up or shut up’. I can deal with these “Rachmanist” wannabes but the elderly, timid or vulnerable cannot. I will post any reply from the police. I have a ‘crime number’
And password!!! I am not going to let this lie. Money was obtained by deception and that is Fraud!
Apologies for the numerous typos! I am just so cross that this unscrupulous bunch of ‘Managing Agents’ can cause people so much grief. I have seen first hand how they operate and it ain’t pretty!!!! I shouldn’t be suprised if alarge proportion of them have some sort of criminal record…… My gloves came off when they started wasting the company money threatening me with forfeiture for not paying money they was non recoverable under my lease terms. They started it and I’ll finish it.