29 Apr 2022
London leading the way with service charges best-practice
In London, one of the Mayor’s key priorities has been to improve the experience of leaseholders.
London has a clear need for intermediate housing for people who have little chance of accessing low-cost rent housing, but who are unable to afford to rent or buy a home on the open market. Intermediate housing, including shared ownership, plays an important role in meeting London's housing needs.
Service charges are familiar to all leaseholders. While freeholders need to cover their expenditure to maintain and repair buildings, service charges can be the x-factor in affordability of housing in London – a particular issue for leaseholders of shared ownership. Where service charges are incorrectly administered, or services themselves fall short of standards, this requires time-consuming scrutiny and challenge, impacting on leaseholders’ quality of life as well as providers’ efficient operation.
One of the key initiatives taken by the Mayor to address this has been to develop a new Service Charges Charter. The Charter aims to improve satisfaction among leaseholders, particularly those in shared ownership, by providing a set of best-practice principles for housing providers to adopt when managing service charges. Developed collaboratively with providers and leaseholders, the Charter is a key step in improving confidence in the sector and making sure leaseholders are being treated with fairness and respect.
The original Shared Ownership Charter for Service Charges was developed in 2017 under the 2016-23 Affordable Homes Programme (AHP). In launching the AHP 2021-26, the Mayor committed to working with industry to update the Charter.
Workshops with providers and leaseholders were held in 2021. These helped to provide an initial scope for the new Charter and to flag any concerns from the sector. A first draft was later shared with the GLA’s investment partners, before being revised and published last December. We often found that providers were already on board with the case for improving their service charge relationships. Co-designing the Charter helped them align expectations in the housing sector, recognising and learning from peers.
Service charges are governed by the Landlord and Tenant Act 1985 and the Commonhold and Leasehold Reform Act 2002. The Charter complements these legal obligations and therefore a key aspect was to strike a balance between being overly prescriptive and providing certainty to leaseholders. For providers, the Charter specifies principles and requirements to be implemented. For leaseholders, the Charter sets out what they can expect from their provider. The document is structured around four themes:
- Transparency
- Affordability
- Design
- Challenge and redress
The Charter recognises that landlords are often party to arrangements with freeholders, whereby a third-party managing agent is responsible for the day-to-day running of a scheme. The Charter encourages landlords to work closely with managing agents to ensure that principles are followed. It also stresses that third-party managing agents that comply with the Charter will have a positive point of differentiation from competitors, improving choice in the market.
Feedback from providers was key to understanding some of the practical challenges they face and to refine the Charter. One of the key innovations brought by the Charter is setting out that leaseholders and residents of affordable housing should be able to access on-site amenity included in the leases of private housing through pre-paid arrangements at prices specified by providers (for example, gyms and workspace). This requirement is an example of how the ways in which services are managed can play a key role in creating inclusive communities. In order to avoid this being an unwieldy requirement for providers, the Charter also specifies that they can meet this by, as a minimum, offering the ability to opt-in to additional facilities to affordable housing residents once a year, rather than having to create an additional management system.
Although the Charter was developed with a London focus, it contains principles applicable to any leasehold properties, including in the private market.
In London, all housing providers receiving funding through the Mayor’s AHP 2021-26 are expected to sign up to the new Charter as part of their contractual requirements.
The Charter’s webpage hosts a list of signatories. In addition, the AHP now mandates that providers need to supply prospective shared owners with Key Information Documents during marketing, further aiding transparency on service charges. These include a section where providers need to disclose whether they have signed up to the Charter.
As part of his commitment to improve the experience of leaseholders, the Mayor has also included a requirement for all shared ownership homes delivered through the AHP 2021-26 to be sold with a 999-year lease as a standard. This, together with the new Charter, are crucial steps in improving consumer protection and ensuring that shared ownership remains an attractive and secure way for people to access affordable housing.
Mariana Schiller is the senior policy officer for the GLA.
