The Service Charge/Debt Collection ‘Scam’

Receiving the annual service charge bill can be a bit of a headache, especially when the sums vary each year. They are necessary when there needs to be an increase to the sinking fund contribution, or if some major works need to be done, but usually there is some advance notice. Many hold back paying their service charge when they have a query, but this can lead to a loophole unscrupulous property management agents often use to fleece leaseholders who want a breakdown of the charges, by sending in the debt collection agency rather than to resolve or address matters.

Most agents send out the service charge notices at the same time each year (or twice a year for some properties), and give a full breakdown, but what about the ones that don’t? You have a right to request a breakdown, but this is where sneaky tactics come into play. These days, most notices are sent via email and hard copy, but what if the agent deliberately sends it to an address where they know the leaseholder isn’t resident? Who is responsible for that? What happens if the leaseholder never receives a notice, thus they don’t know how much to pay, or have any payment details?

Management Company Overcharging?

A reasonable agent would send a reminder, and only after a second letter would they charge a reasonable late payment fee (generally £50 to cover the costs of the letters), but what some have caught onto is the debt collection scam. While collecting the service charge is part of the agent’s remit, some have found a lucrative way to make money from their clients in a murky, yet legal manner with a number of underhand tactics.

• What they do is immediately refer the leaseholder to a property debt collection agency (one of the main culprits that have over exorbitant fees is PDC Ltd), the day after the service charge is due, because legally they can do so. That means if the payment is one day late, then they are allowed to refer the ‘debt’ to a collection agency.
• You may ask why would an agency do that? The answer is simple, and it’s because they can charge an admin fee, and also a referral fee, and all those fees must be paid by the leaseholder. That’s quick and easy money, and a way to shut up people who question them.
• In order to do this, agents will target leaseholders who maybe out of the country, ones who have multiple addresses, and those who tend to pay late. A common trick is to send the notice to an address where the leaseholder doesn’t reside, and they simply state that they had no other address on record. As long as they sent it somewhere they don’t care.

• Agents should email copies of the notice, especially if their clients live outside of the country, or who travel frequently for work. Again, they can claim to have emailed the documents, and can blame the spam box, or that an incorrect email was given and they were unable to contact them via other methods.
• If you call the agent to discuss and resolve matters, they fob you off and say they will pass it onto accounts, but what they are doing is stalling for time. The more time that lapses, it means the debt increases through additional fees.
• The use of the debt collection agency is to scare people into paying quickly and not to ask questions about the service charge, and can then lead to a small claims court action, which then forces someone to pay or risk getting a CCJ. There is a small time window to file a defence, and the agent doesn’t have to do anything, but will have made money through the admin and referral fee.
• A debt collection agency may pretend to want to help mediate and resolve things – do not believe them because that is not their job. They can’t be impartial in any case, and this can be used as a tactic to buy time so the debt accrues.

I recently became aware of these underhand tactics when a friend of mine discovered his neighbour had been extorted (technically it was legal) by his new property management agent, as he was late paying his service charge which was £570. They threatened him with letters, and charged him the following which he paid over three months:

• £96 admin fee to the property management agent.
• £144 referral fee to the debt collection agency.
• £240 instruction fee.
• Each side made £240 from a targeted late payment.

It looks as if the management agent and collection agency like to keep their fees under £250 to avoid detection, so my friend’s neighbour ended up paying £480 in fees for the £570 service charge which is around an APR of 1031%. No doubt both parties are breaking the rules by extorting people with excessive fees, but they also target vulnerable people who won’t challenge them. It also comes as no surprise that property management agents and debt collection agents have a close working relationship, that crosses over into friendship and each making reciprocal positive reviews and comments on their websites, google, and social media platforms.

The reviewer just happened to be a director of the debt collection agency that the property management agency chose to use.

Yes, this is legal, but they are targeting and exploiting loopholes. The key thing is to always pay your service charge, and then challenge them later on, and in this case it appears that the debt collection agency may have broken some FCA regulations if they were not authorised to offer ‘credit facilities’. There are ways to get around this, by paying them, and then to make a counter claim in the small claims court, where they will be liable for the fees incurred if you are successful in your challenge. This of course is stressful and an unnecessary course of action, but many work on a no win, no fee basis, and so they will have no interest in resolving the issue, and will not drop the case as it means that they will get no money.

Some may not bother with a debt collection agency and simply file a county court claim against you in a bid to frighten you, and to ensure you don’t ask any more questions. The whole property management business is open to abuse on so many levels.

In all, it’s a dreadful scam that is legal and that has led to many people being distressed, and who have even taken their own lives, so how can you avoid this?

• If you have a new agent, ask them questions, check their reviews, and look at how long they have been in business (check Companies House). A decent agent will attend a meeting and answer any questions before they are taken on. In my friend’s case, a dubious director changed agents without informing the other leaseholders and signed a contract that effectively allowed the agent to do what they wanted and to bill them for anything up to £700 per item without having to ask permission or to inform them.
• Also ask how much they charge for additional services, and ask what is included in their basic fee. No agents should charge to appear at an AGM because this is part of their job, and it is a public meeting. A friend recently told me that one threatened to charge £300 if they had to have another meeting because issues hadn’t been resolved due to leaseholders not receiving any paperwork.
• Ensure an agent is near the location of the property. This is so they can visit frequently, and can also have spare keys if necessary. It also allows you to drop into the office to see documents and to speak to them directly if you have issues. My friend’s neighbour ended up having a new and very dodgy agent that was running the agency from his home in a village in Cambridgeshire, while the property is over 60 miles away. He was told if he wanted to see the quotes for building work and other invoices, then he would have to make his way to Cambridgeshire to view them. That is unacceptable as a service, yet at the same time is legal.
• Ask other leaseholders if they have had issues. In my friend’s neighbour discovered that he wasn’t the only one that had been targeted, and others had been threatened and charged with similar actions.
• Join some online forums where people will share the names of unscrupulous agents and debt collection agencies. You’ll find the same names crop up, and some change companies every couple of years to hide filing their accounts.
• Make a point of requesting the service charge to be broken down (it should be, but some agents like to put everything under admin expenses), and with any budgets. One of the main issues at tribunals are service charge disputes, and leaseholders have a right to know what they are paying for, but disputes and questions can lead to legal action. There are many cases where agents have been found guilty of overcharging, with excessive fees. In one case in Chiswick (in 2018) , a company called Seloc Asset Management (a new company was formed shortly afterwards) was found guilty of charging £7,000 a year for a non-existent caretaker. As the agent (Mr Coles) couldn’t provide invoices or payslips for the phantom caretaker, or indeed provide any records of when they ‘worked’, it shows that some service charge demands should be examined with care, and challenged where necessary. Apparently, while in this case the tribunal found the managing agent to have overcharged by £48,000, it would be deemed fraudulent (criminal even as the charges were intentional), yet by going to tribunal it also meant the leaseholders could not pursue any other legal action. https://chiswickcalendar.co.uk/tribunal-tells-landlords-to-repay-chiswick-leaseholders-48000-in-overpaid-service-charges/
• If any managing agent refuses to show invoices or appear to avoid answering what the charges are for, then you need to ask why. Often it’s because they are hiding things, and also look out for directors that are removed without their knowledge. This happened to me, and it was because the other director didn’t want me to have access to the accounts which he had been dipping into for several years. https://www.homesandproperty.co.uk/property-news/legal-qa/service-charge-payments-leasehold-flat-how-can-i-check-a136556.html

Remember, a cheap managing agent will always try and make money through other means, and that maybe through additional admin fees (one company even states that there is a £96 admin fee added to the service charge, but is refunded if you pay on time!), but a quick way to make money is the service charge/ debt collection scam. All they have to do is delay sending out the notices and then refer people to the debt collection agency if they don’t pay on time. They know they can’t pay if the notice was never sent, and they create fear with the threat of court action. Each side makes money, and if challenged they increase the charges and won’t stop until you pay, even if you have a valid dispute over the charges. This is how they make their money, and the problem about going to tribunal (besides being stressful) is that you lose some rights to pursue legal action against the parties.

Pay your service charge under protest (otherwise you will be technically in arrears), then fight and challenge any dubious charges in the small claims court or at a tribunal.

Technically you can pay the unreasonable fees, then make a counter claim for them in the small claims court. The small claims court is procedural, and suggests mediation, but a no win, no fee company will never mediate, and it stops them adding on additional fees during the dispute.

It may cost more, but it’s worth getting the accounts audited, and to check the invoices because those who don’t can end up getting stung by the property management agent scammers. If they spot an opportunity to scam, then they may take it – don’t give them the opportunity. Decent property management agents are hard to find, so do you opt to stay with one that can be slow to do things, or risk moving to another that might legally fleece you with a barrage of inflated charges and fees, and who rips you off without you even knowing it?

https://www.which.co.uk/consumer-rights/advice/how-to-complain-about-your-property-agent