Open Letter to the Rt Hon Michael Gove on service charge concerns in social housing

G15 have written an open letter to Secretary of State for Levelling Up, Housing and Communities, Rt Hon Michael Gove, in response to service charges concerns within social housing. The full text is below.

Dear Mr. Gove,

I am writing to you in my position as Chair of the G15 group of London’s leading housing associations to respond to issues that have been raised with you about service charges in social housing. In particular, I would like to respond to comments and accusations made against housing associations in the letter you were sent on 10 April by Sir George Howarth MP, which was supported by 34 fellow MPs.

Sir George’s letter references evidence collected by Social Housing Action Campaign (SHAC) and campaign group Find Others. G15 members provide more than 850,000 homes across the country, including around one in ten homes for Londoners, and we were deeply concerned to read service charge issues being described as a “form of abuse” and “this scandal also represents a new form of benefit fraud”.

As you will know, housing associations are charitable organisations that do not make a profit from service charges. At the start of each year, we provide residents with an estimate of their service charges, based on the most recent costs available from our own organisations or, in many cases, the external managing agent. We try to make these estimates as realistic as possible, to avoid the need to recover higher amounts at the end of the year. If charges are overestimated, then residents will be refunded at the end of the year. Housing associations only recharge residents for the actual costs of services which are provided, and all our suppliers are procured using Government-approved procurement processes and follow Government legislation.

We fully appreciate that increases, errors and inconsistencies are unwelcome and incredibly frustrating for residents, and so we do all we can to ensure charges are both accurate and reasonable. G15 members accept that improvements need to be made to the way service charges are set, collected and how we respond to queries about them, and improvement plans are being urgently implemented to address this. Members are recruiting additional resource to tackle this too.

Why are service charges increasing?

We are committed to providing services that are good quality and good value for money, with service charges that accurately reflect day-to-day running costs. The presence of estate management agreements can, however, complicate an already complex system.

New research by The Property Institute shows that service charges have gone up by nearly double inflation since 2019. This has been driven by several specific increases that are beyond the control of housing associations:

• Building insurance costs have risen 92%. Despite housing associations investing hundreds of millions of pounds to address building safety and quality issues, many insurance companies that used to insure our sector have left the market. This has led to less competition, risk aversion and soaring prices. We would very much welcome Government support to address this critical concern. Support could include Government acting as the re-insurer of last resort to reduce premiums and service charge costs;
• Utilities costs have increased 73% (unlike domestic tariffs, our business energy tariffs are uncapped);
• Professional fees that we pay to various organisations have increased 69%;
• Important new building safety legislation has added an average of £177 a year to each resident’s service charge. Several of the measures we’ve introduced as part of this legislation also require ongoing maintenance, which brings in another ongoing cost.

Openness, transparency and support

Our leases commit us to providing residents with an estimated cost of service charge expenditure at the beginning of each year. All leaseholders have the right to challenge the reasonableness of any service charges under Section 27a of the Landlord and Tenant Act 1985. We provide invoices for service charges every year, clearly stating the services that have been charged for, and we provide major works account statements upon request. We also provide service charge account statements on request, and contact residents within 28 days if their account falls into arrears.

Service charges are subject to our formal published complaint procedures and there are clear paths for recourse where our customers are not satisfied with explanations or evidence we provide. This sets us apart from the vast majority of private freeholders where often the only path for dispute resolution is the First Tier Tribunal.

G15 members provide a range of support services if residents are struggling to pay their rent or service charges. We have trained staff who are able to help residents manage their finances, with independent and confidential face-to-face support. At my own organisation, L&Q, all residents are given information about how they can contact our Pound Advice service for help.

Not-for-profit housing associations are driven by social purpose, and it’s important to us that our homes are genuinely affordable and provide best value for money for residents. We’re looking at how we can simplify the way we work with building owners and managing agents on new developments where we are not the freeholder, so that we have more control over the services residents must contribute towards. G15 members are also reviewing how we carry out affordability checks for new residents to reflect the rising cost of many services.

I hope this letter is useful in setting out the position of G15 members with regard to service charges.

Yours sincerely,

Fiona Fletcher-Smith

Chair, G15