The shocking figures, revealed by block management experts Urban Owners, mean that blocks are typically paying £965.33 more than necessary for insurance cover, money that goes straight into the pockets of managing agents in addition to their regular management fee. However, leaseholders can avoid these excessive charges by taking control of their block through the Right-to-Manage (RTM) process.
Steve Wylie, Director at Urban Owners, comments:
"The huge insurance commissions collected by managing agents and freeholders are unethical to the extent that they would amount to fraud in any other industry. However, a total lack of transparency means that the true scale of the problem is hidden from those who suffer from the artificially inflated service charges - the leaseholders themselves.
Leaseholders should not accept high charges and poor service from managing agents. The RTM legislation allows flat owners to take control of the management of their block, and choosing to use transparent block administration services will provide full accountability over the use of funds."
Urban Owners has launched a campaign calling for the Government to protect leaseholders from excessive block service charges by improving transparency in the leasehold property management sector. Consumer group Which? has added its voice to the growing clamour for reform of the industry.
James Daley, Editor Which? Money, comments:
"Which? regularly hears of problems for leaseholders and welcomes any efforts to make the existing law work better for them. More certainly needs to be done to ensure leaseholders are aware of their rights - in particular, the right of groups of leaseholders to take over the management of their block from inefficient freeholders.
The fact that the government has to fund a national leasehold advisory service - LEASE - is evidence enough of consumer confusion and possible detriment."
In one case, after taking control of the management of the building, leaseholders at a block of flats in Woolwich, South London, were able to cut their insurance premium by an incredible 77%, simply by working with Urban Owners to eliminate commission from their insurance premium. At another block, in London's Notting Hill, Urban Owners were able to save residents a total of £7,177.07 or 63% a year.
Arranging insurance at a block of flats is typically the responsibility of a managing agent, who acts on behalf of the freeholder. However, it is the leasehold flat owners who are liable for the cost of the insurance which is paid for through their service charges. Leaseholders therefore often have no control or transparency over how their money is used, allowing managing agents and freeholders the freedom to demand extortionate levels of commission from insurance companies with virtual impunity.
Urban Owners estimates that the total cost to UK leaseholders of sharp practice in the managing agent industry - including arranging unnecessary works or using uncompetitive or financially-linked contractors from within the same holding group as well as demanding exorbitant insurance commissions - is a shocking £700 million per year.