Heinz is bankrupting me. That was the claim this week from Mary-Anne Thompson, who has seen the annual service charge on her London flat rocket from around £500 to more than £7,600.
She claims the £640 a month she has been asked to pay is “extortionate” and represents a sizeable chunk of her monthly income, adding: “It’s more than my mortgage.”
That’s the sort of service charge someone living in a swanky London penthouse might expect to pay – but this is a three-bedroom flat above a shop in Brixton. “There’s no gym, no concierge, no elevator, no sauna – there’s just a communal corridor. It’s crazy,” says Thompson, a nurse who works mainly for the NHS. She claims she and the building’s two other residential leaseholders are, between them, being asked for a huge sum – almost £3,000 a year, the paperwork suggests – to “vacuum the corridor” an unnecessary 52 times a year, plus more than £990 a year “to test the corridor’s lights”.
Then there is the demand for more than £1,000 a year per flat for buildings insurance when, says Thompson, cover could probably be obtained for less than half that.
And if you were wondering what Heinz has got to do with all this, it turns out that the global food giant isn’t just making money from baked beans, tomato ketchup and the like. It also owns a portfolio of property investments – including the freehold of Thompson’s leasehold flat, where she has lived for 14 years. The good news for Thompson and her neighbours is that after Guardian Money intervened, Heinz told us that reduced service charges are being finalised, so their bills “will be considerably lower than they anticipated”. Historic service charge arrears will also be written off.
Earlier this summer the government announced plans for a shake-up of the rules in this area, though this is focusing more on banning leasehold on future new-build homes and tackling spiralling ground rents.
Cases such as this one suggest that ministers also need to look at whether flat dwellers should have more rights to challenge unreasonable service charges – the fees most leaseholders pay to cover their share of the cost of maintaining their building.
Thompson’s is one of three residential flats in the building and, she says, both her neighbours are also outraged. The freeholder used to be the owner of the shoe shop on the ground floor (it’s now a different retailer), and it all worked well – until Heinz took over.
The part of the company that owns the freehold is Heinz Pension Plans Property Investment Fund. Thompson says she has only dealt with its managing agents CBRE.
Guardian Money has seen copies of the service charge demands sent by CBRE, which show Thompson was billed for £1,667 per quarter during 2016. However, that doesn’t include buildings insurance, currently £1,011 a year. That gives the total annual bill of £7,682. The two other leaseholders are paying broadly the same, which adds up to more than £20,000. Thompson says: “We’ve been arguing with them for the past year, and we have taken legal advice.”
Thompson has refused to pay some of the demands, and four weeks ago she and the other leaseholders had a meeting with CBRE where they raised their concerns. CBRE told them that “this will require a detailed review … to establish an answer to these points,” which would take a few weeks.
“I’m an anaesthetic nurse working in operating theatres and can’t afford £640 a month. Neither can I sell the property because who will take on £7,500 of service charges a year?” says the 50-year-old. She adds: “I’m boycotting Heinz beans from now on, and I’m going to encourage everyone I know to boycott them as well.”
Trying to get to the bottom of exactly how much is being charged for which services is no easy task. Thompson showed us a copy of the budget document for the period 25 December 2015-24 December 2016, plus other bits of correspondence, but claims that “every time they send us a document it has different figures”.
The budget document states that CBRE’s fees and administrative costs for the year totalled £6,577, with the three flat owners paying £4,602 of this.
Other costs to be shared by the trio included £828 for the testing and inspection of “landlord electrical circuits” in the residential corridor, £900 for drawing up a planned preventative maintenance schedule, and £1,197 for an annual health and safety audit and a separate fire risk assessment.
Thompson is particularly annoyed about the £1,236 for cleaning the corridor once a week, with this again shared by the three flat owners. The budget document says this sum is for six months, which suggests an annual cost of £2,472.
“It literally is a corridor. What can they do apart from vacuum it? Before Heinz become the freeholder, myself and the others regularly cleaned it rather than pay a cleaner.”
One of the biggest costs to be picked up by the flat owners is £4,800 for the installation of a fire alarm in the corridor which would be linked to the shop’s system, plus an estimated £165 per quarter for servicing it. Thompson says she found a provider that is £1,000 cheaper, with a lower servicing cost, and that CBRE/Heinz indicated it was happy to go with this, but the work has yet to be carried out.
CBRE said in an email that all of these costs would attract 20% VAT on top, thereby making them even more expensive – for example, this would take the cleaning bill to £2,966 a year.
Thompson says that prior to the arrival of Heinz and CBRE, she and the other leaseholders “managed this between us very happily for 10 years. It’s not as if we haven’t maintained the building – we have. We put down a new carpet throughout the communal corridor, we painted the whole thing, we had a whole new felt roof put on, and we even put up scaffolding at a cost of £2,000 to resolve a leaking downpipe”.
She concedes that some of the service charge demands for 2017 are lower: the one for the last three months of this year is £1,257. But that is still more than £5,000 a year per flat. She says she looked at how the bill could be cut, and costed the service charge at around £1,200 a year per leaseholder, which would include buildings insurance at £400 per flat.
But things now look a lot brighter for the trio, as those costs look set to tumble. Hopefully that means Thompson will soon be able to start eating Heinz beans again …
‘Stuffed’ by a loophole in the law
In situations similar to Thompson’s, where an agreement can’t be reached, a solution might be for the leaseholders to exercise their “right to manage” (RTM) – in other words, take control of the management of their building.Others who have done this have cut their service charges dramatically.
But Thompson says that in their case, because their flats are above a shop, they are “stuffed”. Under the RTM rules, at least 75% of the building must be residential – ie, if there is a shop in the building it can’t take up more than 25% of the total floor area.
The trouble is, many shops have a basement which takes them over the 25% threshold. This, presumably, affects thousands of people who live above a shop, restaurant or office, and Thompson feels that this is a loophole in the law.
The companies respond
Heinz said: “We are pleased that as the review started by CBRE some months ago draws to a conclusion, reduced service charges now being finalised will mean that Mary-Anne Thompson’s costs and those of the other tenants will be considerably lower than they anticipated, and that historic service charge arrears are being waived.”
CBRE said it understands the concerns the residential tenants have in regards to the “perceived rise” in their service charge, and added: “We have been working closely with them to find a mutually agreeable solution. The property had not been managed in an appropriate manner historically, and therefore there were many issues that had to be addressed – namely health and safety – when our client acquired it. There are costs associated with bringing the asset up to standard, and these costs do have to be borne by the residential tenants under the terms of their lease.
“However, an agreement had already been reached to write off most of the significant service charge arrears. We have also been working towards establishing a more affordable level of service charge, particularly now the principal health and safety concerns are addressed. We hope this will provide a better footing for the ongoing landlord and tenant relationship, and have always welcomed open and transparent communication.”
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