Direct Line’s research into the steep rise in service charge levels in London and the South East are a sharp reminder to both leaseholders and freeholders to ensure they understand the nature of leasehold, as Brady Solicitors’ Colin Hussey explains.

The research by Direct Line for Business has been widely covered in the press recently, with its headline findings that service charge levels are soaring, particularly for new build flats and houses.

Direct Line reports that the average annual service charge is now £1,863 across all leasehold properties and £2,777 for new-build flats and houses, with one third of management companies increasing service charges in the last two years.

Reasons for the rise include the need for more sophisticated block management, with Direct Line reflecting an increasing trend for new-build blocks and developments to offer 24-hour concierge services, gyms, cinema rooms and event libraries.

The research also indicated that ground rents are rising too, with an average of £371 a year on new-builds and £327 on older properties.

Freeholders affected

It isn’t just leaseholders that are facing rising service charges, with developers also demanding that freeholders pay service charge contributions towards the maintenance of roads and gardens.

A hidden cost?

Commenting on the research, the head of Direct Line for Business, Nick Breton, described services charges as often being “a hidden cost, which should be factored in when considering the affordability of a property”.

Fundamentally, it all boils down to knowing what you are paying for: anyone considering purchasing a leasehold property must take time to understand the leasehold model. A good conveyancing solicitor will ensure you are aware of the service charge from the outset and will explain the lease to you, including when, where and how you will have to pay the service charge so that there are no ‘hidden’ costs or surprises further down the line.

This is relevant whether you are purchasing the leasehold property as your own home or as a buy-to-let investor. It is essential to factor in the affordability of the service charge from the outset and also to ensure you understand how it could rise in the future.

Equally, if you are a freeholder or landowner and working with a developer, ensure you seek clarity on future service charges for which you may be liable.

A message for managing agents

As blocks become more sophisticated, particularly in the UK’s major urban conurbations, service charge levels will continue to climb, as will – understandably – leaseholder expectations. For managing agents it will remain as important as ever to deliver an impeccable property management service.

Rising service charge levels may also mean that affordability can become an issue. Ensure you are managing the service charge account correctly, issuing service charge demands in accordance with the lease, and working closely with slow or non-payers to maintain cash flow and support the required levels of block management.