Are Managing Agents the cause of rising service charges? How are service charge increases best managed?

As leasehold property specialists, Bradys works with everyone within the industry, from managing agents to leaseholders, and from freeholders to RMC Directors. This position enables us to have insight into the perception of the leasehold property industry form a variety of different perspectives. With that in mind, it is quite easy for us to see the biggest pain point for leaseholders currently is the continued increase in their service charges.  

Leaseholders’ inevitable disappointment, or in some instances anger, with an increase in their service charges is directed at their managing agent in most cases, but is this fair? And what can managing agents do to counteract it? 

Why are service charges increasing for leasehold properties?

The reality is that service charges are increasing due to factors largely outside the control of managing agents. The TPI Annual Service Charge Index surveys multiple data sources to get a picture of costs. For more information see the 2024 report here  

Understanding these key cost drivers can help managing agents educate leaseholders and improve transparency: 

1. Inflation and Rising Costs of Goods & Services
   The price of materials, cleaning services, insurance premiums, and contractor fees continues to rise, affecting service charge budgets. 
   
2. Stricter Building Safety Regulations
   Government regulations, particularly around fire safety and cladding remediation, have made compliance more expensive. 
   
3. Energy Price Increases
   Communal energy costs for lighting, heating, and security systems have risen. 
   
4. Insurance Premium Hikes
   Buildings insurance is a major component of service charges, with premiums increasing due to market conditions and risk assessments. 
   
5. Skilled Labour and Contractor Availability
   The rising cost of skilled labour impacts maintenance and repairs. 
   
6. Major Works and Reserve Fund Contributions
   While major works are necessary to maintain the property’s condition, leaseholders often feel unprepared for large service charge demands. 

How can managing agents better manage service charge increases?

The fact that service charge increases are somewhat inevitable, due to the reasons previously mentioned, makes the way in which managing agents inform leaseholders of the increase, and communicate with them generally, of increased importance. For example, if a managing agent was not to interact with leaseholders other than when they issue service charge demands, and then they issue a demand significantly higher than previous demands, leaseholders are unlikely to react well. However, if a managing agent use the following strategies, the reaction may differ: 

1. Improving Transparency
   One of the biggest frustrations for leaseholders is not knowing how their service charges are spent. Managing agents can provide clear, itemised breakdowns of costs and ensure leaseholders have easy access to financial reports.
   
2. Enhancing Communication
   Engaging with leaseholders regularly through meetings, newsletters, and online portals can help them feel informed and involved. Addressing concerns promptly and being available for queries fosters trust and confidence.
   
3. Demonstrating Cost Efficiency
   Managing agents can actively seek cost-saving opportunities, such as bulk purchasing, energy efficiency upgrades, and preventative maintenance strategies, to show leaseholders they are committed to keeping costs under control.
   
4. Educating Leaseholders
   Many leaseholders may not fully understand the complexities of property management. Providing informative guides, FAQs, and educational sessions can help manage expectations and reduce misunderstandings.
   
5. Encouraging Leaseholder Involvement
   By involving leaseholders in decision-making, such as obtaining multiple quotes for major works or discussing budget planning, managing agents can foster a more collaborative relationship and reduce resistance to necessary costs.
   
6. Providing Excellent Customer Service
   A positive, professional approach to handling leaseholder concerns, maintenance issues, and disputes can significantly improve the reputation of managing agents. Prompt responses, fair handling of complaints, and a commitment to high service standards go a long way in changing perceptions.

Summary

Rather than being the target of leaseholder frustration, managing agents can shift the narrative by demonstrating transparency, efficiency, and commitment to fair cost management. By proactively engaging with leaseholders, explaining rising costs, and implementing cost-saving measures, managing agents can build trust and foster a more positive relationship. This will reduce the number of complaints received and minimise leaseholders changing agent. It will also assist the managing agent in maintaining a predictable and efficient service charge cash flow.

When leaseholders are being fully informed, they will know when their payments are due and managing agents can instruct specialists to recover arrears sooner, as they are confident in their communications and that leaseholders are aware of their arrears.

At Brady Solicitors, we work closely with Managing agents and Resident Management Companies to support them in recovering service charge arrears and ensuring that service charge budgets are managed fairly and effectively. If you need legal assistance in dealing with arrears or disputes, contact our expert team today.