A petition launched by the SHAC Secretary calling for measures to end service charge abuse has received a reply from Michael Gove’s department for Levelling Up, Housing and Communities (LUHC) after exceeding the first target of 10,000.
See the Petition and government reply.
At the present time, the petition has gathered 16,100 signatures and has reached a ranking of 27th out of 1,470 open petitions despite having been launched less than a month ago. If it gains 100,000 signatures, the issue will be debated in Parliament, throwing much needed light on the level and scale of financial abuse that is taking place.
Disingenuous and Misleading
The written response from LUHC is both lame and lying. It opens by saying:
Leaseholders have rights to challenge their service charges; the Leasehold and Freehold Reform Bill contains measures to empower leaseholders to scrutinise and challenge unreasonable charges.
LUHC response
And later continues:
Leaseholders wishing to contest the reasonableness of their service charges may make an application to the appropriate tribunal.
LUHC response
These are both lame and misleading statements. In fact, leaseholders already have a legal right to view and challenge service charges within Sections 21 and 22 of the Landlord and Tenant Act 1985. However, there are considerable barriers to enforcing this right individually. To do so, the resident would need to represent themselves in court or afford a solicitor. Unlike landlords, residents do not have a vast pot of money to draw upon.
SHAC member Bryony Hall picks up this point saying:
“I regularly campaign about the impact of loss of Legal Aid and how hard it is to actually get impartial advice and support. Many solicitors have not kept up with their Legal Aid Certificate registrations for civil law matters.
“The Law Society database of contacts needs updating. All of the charities I know ie Citizens Advice Bureaux, Greenwich Housing Rights, and Toynbee Hall cannot take on complex legal casework because of the shortage of solicitors and barristers who can support clients in court”
It offers an entirely different perspective on the barriers to justice for those who don’t have a corporate war chest (or top government salary) to dip into.
The Barricaded Road to Justice
Getting to Tribunal is just one of many barriers that residents have to surmount. If they win in court and the Tribunal orders the landlord to refund them, it is more likely than not that the landlord will ignore the court order. The penalty for doing so is miniscule in the context of the housing association’s significant wealth. The resident then has to make a further application to the court to fight for the refund. It is a hamster wheel they can tread for years.
Michael Gove, Secretary of State for Levelling Up, Housing and Communities
And of course, tenants have absolutely no legal entitlement to view a breakdown of their service charges and therefore no access to the Tribunal system. The LUHC’s statement wilfully excludes any reference to tenants precisely because there is nothing in statute to protect them. There is no other retail sector that we can identify which obliges people to make payments without having to evidence and explain what the payments are for.
Legalised Extortion
The next section explains what should happen in theory, but as we have pointed out, has instead become a legalised landlord extortion racket:
Service charges are a financial contribution by a leaseholder for the costs of the day-to-day management and maintenance of their building (e.g., including general maintenance and repairs, buildings insurance, cost of management services).
LUHC response
And later states:
By law variable service charges must be reasonable and, where costs relate to works or services, the works or services must be of a reasonable standard.
LUHC response
This is not what happens, and we have proof. SHAC and Find Others have collated a significant body of evidence showing that service charge bills are riddled with overcharges. This includes charges for services which are entirely fictitious, provided by the council not the landlord, or provided to a different block or estate for example. It also includes hyper-inflated charges that bear no reasonable relationship to the services actually delivered. The evidence has been shared with LUHC on multiple occasions.
As if all this wasn’t enough, there’s more. The LUHC explains:
The way in which the service charges are organised, for example, what services are paid for, what are individual contributions, and when payments are to be made, are set out in individual leases.
LUHC response
We have seen the lists of billed items growing exponentially year on year. Landlords are adept at finding new ways of describing existing services and presenting them as something additional.
There is no real clarity for leaseholders. But for tenants and shared owners it is even worse. There needs to be a government schedule delineating which items are covered by rents and which items are service chargeable. Currently, when new items pop up in the service charge list, it is often the case that the services delivered by the landlord remain the same. This means that their costs were already covered by rents, although no rent reduction follows.
The Failure of Voluntary Regulation
The reply goes on to say:
There are two service charge codes of practice approved by the Secretary of State for the residential leasehold sector and private retirement housing. They both seek to promote good practice and can also be taken into account at court or tribunal proceedings where relevant.
LUHC response
And:
Leaseholders may seek free advice from organisations such as the Leasehold Advisory Service (LEASE) and Citizens Advice if they are concerned with the charges they are asked to pay.
LUHC response
These statements fall into the lame basket. The voluntary nature of such codes means that there is no penalty for failing to adhere to their provisions, so landlords ignore them.
The LUHC also claims that:
The government believes very strongly that service charges should be transparent and communicated effectively, and that there should be a clear route to challenge or redress if things go wrong.
LUHC response
This is evidently a lie because if it was true, the government would have acted to shore up access to justice instead of reducing it. They would not have cut Legal Aid for housing cases for example, and would have continued funding the many housing advisory services that have instead been shut down.
Michael Gove has personally had to intervene in disputes between housing associations and residents in his own constituency and is thus well-aware of service charge abuse. This is not therefore ignorance of the problems, but a wilfull favouring of the landlord class.
The LUHC reply continues:
Many landlords and managing agents already demonstrate good practice and provide significant and relevant information to leaseholders. However, too many landlords are failing to provide sufficient information or clarity to leaseholders.
The government is bringing forward a number of measures to require landlords to provide further information to leaseholders on a proactive basis and increase the transparency of their service charges and administration charges, as well as providing more information to leaseholders on a reactive basis. The Leasehold and Freehold Reform Bill introduced to Parliament on 27 November 2023 contains measures to ensure that all leaseholders regularly receive minimum key financial and non-financial information. This will help them scrutinise and more effectively challenge their landlord if they consider their fees are unreasonable.
LUHC response
The reply then goes on to outline some of the measures in the already watered-down proposals, which generally just restate existing rights for leaseholders. This also assumes that the proposals will not be further weakened before becoming law.
Unequal Financial Risks
The statement continues to ignore the financial abuse of tenants and shared owners before concluding:
The government also believes that leaseholders should not be subject to unjustified legal costs and should be able to claim their own legal costs from their landlord where appropriate. The Leasehold and Freehold Reform Bill will address this by requiring landlords wishing to pass on their legal costs to leaseholders to apply to the relevant court or tribunal seeking their approval in order to recover their legal costs from leaseholders either as an administration charge or a service charge. We will also give leaseholders a new right to apply to the relevant court or tribunal to claim their legal costs from their landlord.
Given that residents almost always represent themselves at Tribunal because they cannot afford a solicitor, there isn’t likely to be any legal costs to recover from their side. By contrast, the landlords quickly lawyer up using the likes of prestigious and pricey global law firms such as Devonshires.
The financial risks carried by residents should they lose is therefore considerable and personal, as opposed to corporate and limited for landlords. Thus, the vast majority of leaseholders are wholly unable to exercise even these scant legal rights in practice.
And whose side are the courts on?
4 May 2024
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