As the Leasehold and Freehold Reform bill makes its way through parliament, service charges are in the news once again. This month’s reports are the most recent in a series of alarming stories about leaseholders facing higher service charges.
On the surface, these reports tell a familiar story of inflationary pressures, insurance hikes and building safety charges driving up costs. But dig deeper, and you’ll see that many of the most challenging cases feature homes delivered via Section 106 (S106) agreements.
S106 has gained a mixed reputation within the housing world. Under the obligation, developers have to build a percentage of affordable housing as part of the planning permission for their site. On one hand, it results in diverse, mixed communities living in different tenures, often in the same building. On the other hand, these arrangements often result in complex schemes, with high density homes mixed in with open spaces and amenities, and a web of building owners, managing agents, housing associations and suppliers, each with their own roles and responsibilities.
Within these agreements, the managing agent is appointed by the freeholder, who then becomes their client. Housing associations take on a head lease for affordable homes, and bill residents based on an estimate of charges at the start of each year from the managing agent.
When the managing agent provides their final costs at the end of the year, residents who have overpaid are refunded, and those who have underpaid are asked to contribute more. Of L&Q’s 105,000 homes, 20,000 are subject to complex ownership arrangements.
This includes over 16,000 where we have limited control over the services provided to residents, and the costs they’re charged for these.
MP’s last month recognised that rising service charges and maintenance costs were making shared ownership ‘unaffordable’. As social landlords, we have a moral obligation to ensure costs are kept as affordable as possible, but as leaseholders, we often have limited influence on the services provided to residents.
All this begs an important question. Should we be managing homes where ownership arrangements make it hard for us to influence the services and costs passed onto residents?
Although not a perfect system, S106 delivers a huge proportion of the affordable homes built each year. In 2010, the government cut grant levels by 60%, and since then S106 has emerged as the main way in which new homes for social and intermediate rent have been built. At a time when build rates are falling, we must be pragmatic about how to deliver the most affordable housing we can.
Another attraction of the model is that alongside making a valuable contribution to housing supply, S106 produces mixed tenure developments, often enabling households on lower incomes to settle in otherwise unaffordable locations, and – in the best schemes, creating a mix of homes lived in by owners and tenants, with little to distinguish the two.
Of course, to highlight the challenge is one thing, but to provide a solution is another matter altogether. At L&Q, we’ve started a review into how we work with our managing agent partners and how we can be more accountable to residents.
We know that affordability and value for money are priorities for shared owners, and where we deliver the services they receive we have teams dedicated to achieving this. We’ve also started a review about how we can carry out affordability checks which help new residents to prepare for and cope with the rising cost of services.
For homes where we currently lack this control, the best way to ensure fairness for existing and future leaseholders is to improve how we hold managing agents to account. We are beginning to review how we can invest in our relationships with freeholders and managing agents to achieve this.
Good partnerships provide the foundations for any successful S106 agreements: without them, we can’t deliver the quantity of homes or quality of services that we want and need to. We’ve developed a clear organisational position that sets out our intention to develop where we can influence services, and work with partners whose values and behaviours align with our own.
Alongside this, we will continue to champion resident interests by being robust in our approach to challenging existing management agents where they are consistently underperforming, including taking legal action where necessary.
This is not to say that all managing agents are letting us down: the vast majority get things right for us and our residents. As housing providers, it’s also our responsibility to be transparent and accountable to our residents. We know we can improve.
For those facing higher service charges, the leasehold reform bill offers a glimmer of hope in the form of more rights and protections. But as rumours swirl of potential U-turns, concern is growing that the bill might be weakened to the point where it represents very little reform at all.
Given the scale of the issue, and the number of people affected, the sector should use our collective voice as a catalyst for change. Avoiding S106 will have serious implications for our ability to meet housing need.
We must deal with the circumstances as they are and work in partnership with the industry to find solutions. Only then will we ensure that every resident is treated in a way that is consistent with our values and social purpose.