A service charge for a leasehold property is one of those bills that has to be paid as per the terms of the lease agreement. It is what the leaseholder agreed to when they signed the lease to their property. The payment of the service charge means of course, that the building and any common parts to the development can be suitably maintained. However, what happens when the service charge isn’t paid? Managing agents, like us here at Concordia Residential, are employed by developments to carry out credit control of the service charges as part of their management remit. This includes estimating future service charges, issuing service charge demands (although we feel demand is not the nicest word to use), collecting the monies and of course having to chase leaseholders when service charges are not received. This blog is about the ethics of that credit control and Concordia Residential’s opinion on the matter.
The Process of Debt Collection
Most managing agents, rightly so, will have a process in place to carry out the collection of unpaid service charges, also called debt collection. This of course has to be adapted to be in line with any terms of the lease agreement being managed. Click to find out more about service charges.
Many would assume that the debt collection process and any relevant charges are explained fully to the directors of a development prior to the directors selecting that managing agent. Unfortunately, it is all too common that many directors do not know the full extent of a managing agents debt collection process or charges, nor are they informed if either of these are changed at any time.
Experience has taught us that debt collection charges against individual leaseholders can be extortionate and completely unjust in this industry. There are no apparent ethics, nor is there regulation over the amount of such costs and it can be sickening to see how some leaseholders are treated when faced with difficult times.
Potential Charges for Debt Collection
Managing agents can charge huge amounts of money for a simple letter chasing any service charges due – £100.00 in some cases for a first letter! Thereafter the letters get more expensive and are sent out in quick succession, seemingly without a care for the fact that debt is now increasing against the leaseholder.
Furthermore, managing agents can then charge to refer a case to a professional debt collection agent. We have seen charges for this referral run up to £250.00.
So far, 3 letters at £100.00 each, then a £250.00 referral fee, and the leaseholders debt has already increased by £550.00 and they may not even know about it. How is this ethical or justified and where does the money for the letters and debt referral go? We are sad to reveal that the money more often that not goes directly to the managing agent and is normally classified as an ‘income stream’ to them.
Concordia believe the ethics of this is simply not right or justified.
Additional Aspects
There are some additional aspects to consider with the above, in that most managing agents will need to employ people within a credit control team and those people need to be paid a salary. Indeed there is a cost to this, but surely the cost should be covered in the management fees charged to the development? Also, many will argue that the need to have a credit control procedure is essential. This is agreed with, however Concordia do not think this should be an aggressive process, nor should it be classified as an income stream to the managing agent. Surely the excessive fees and hard-lined approach are most beneficial to the managing agent and not to the development? It is indeed true and prudent that the development needs the service charge in order to operate, but our view is that there is a right way to go about it without exploiting leaseholders and in turn creating a more harmonious development. Debt collection fees are some of the hidden charges many managing agents have which we at Concordia find utterly immoral.
Ethics First
If you are a leaseholder, would you not prefer some empathy and understanding if your financial situation meant you got a bit behind in paying your service charges? Wouldn’t you wish to have ethics put first, with a phone call to simply say your service charge hasn’t come through this month and is everything ok? Would it not be better all round to have a managing agent who you can talk to about it all and who doesn’t simply send you down their debt collection process in order to generate more income for themselves? This is what we believe is ethical and this is what Concordia can give you. Get in touch with us to find out more.