Why service charges are increasing – The Property Institute
The Property Institute (TPI - formerly ARMA and IRPM) has reported in a new index an average service charge increase of 41% since 2019, as compared with a cumulative inflation rate of 23% over the same period. In the last year, there has been a 3% increase in the average service charge bill, based on data gathered from 108 estates including 13,754 homes with a mix of buildings, ownership structures and managing agents. We supported the TPI in their research and have provided data from our portfolio. In 2024, the average service charge cost per estate was reported at £467,138 - an average of £3,634 per leaseholder.
TPI point out that while unwelcome, this should not come as a surprise. After all, people who live in freehold homes have had to contend with rising energy costs, higher building insurance premiums, and increases in the cost of home improvement or repairs and maintenance projects. These are all things that leaseholders pay for through the service charge and contributions to reserve funds. Rather than making a profit, managing agents collect service charge funds to meet real expenditures.
However, in addition to repairs and maintenance, insurance, and energy, this year managing agents – and therefore leaseholders – are having to contend with the cost of implementing the new building safety regime, which was brought in by the Building Safety Act in 2022. Depending on the complexity and age – among other factors – of a building, the cost of implementation can vary hugely. Unlike cladding remediation, the government made no provision for this to be paid for by anyone other than leaseholders.
“TPI and its members have been concerned about rising service charge bills and the long-term impact on reserve funds for some time. The cumulative impact of a pandemic, an energy price crisis, the addition of the new regime requirements for building safety, and a cost-of-living crisis in the last couple of years have undoubtedly contributed to soaring costs for labour, materials, utilities, staff and insurance – as is evidenced by our Service Charge Index “said Andrew Bulmer, CEO of TPI.
He added, ““We are fully supportive of the new building safety regime; however, it cannot be denied that safety comes at a cost. A further complication is that not all the costs have been clear as early as we would like, while professionals have been waiting for details in secondary legislation, some laid only this year. As a result, I am not surprised that many leaseholders are as dismayed as we are by some substantial increases in their service charge bills, often at short notice."
Richard Daver, Group CEO at Rendall & Rittner said: “We value our TPI accreditation and membership and have fully supported them in their research, by providing data from our portfolio.
We aim to make service charges as transparent and fair as possible, setting out clearly to leaseholders what is included in their service charges. Over the last few years, there have been many major challenges with world events creating inflationary pressures which have contributed to an increase in service charges across the industry. Our teams are continually working hard to keep service charges costs down as much as possible, including key elements such as utility, insurance, supplier and building safety expenditures.”
