Quick Answers
What was wrong?
Three undisclosed income streams flowing to the agent — insurance commission, a percentage added to contractor invoices, and ad hoc charges on top of the management fee. Plus a cleaning contract 50% above market rate, an insurance premium never tested at renewal, and a management fee that had never been benchmarked.
What did Neon do?
Full account and contract audit in month one, insurance rebroked on a fee basis in month two, cleaning contract retendered in month three, all agent income and ad hoc charging abolished, component schedule prepared in month five. Every change put to leaseholders in writing.
What changed?
£11,100 a year removed from the cost lines reviewed — around £505 per flat per year, a 34% reduction on those lines. Agent income beyond the management fee is now zero. The reserve fund contribution stayed at £6,000, but for the first time there is a component schedule showing why.
The Situation
The block is a 22-flat development in Enfield, built in the early 2000s. It is a walk-up block with no lift, arranged over three storeys across two cores, with a flat roof, a communal gas boiler serving the hot water system, and an undercroft car park. The previous managing agent had been in place for seven years.
The RTM company had three directors, none of whom had previous experience managing a block before the RTM was formed five years ago. They had relied entirely on the managing agent to set the budget and manage the building. The triggers for change were two things happening in the same month: the annual accounts arriving nine months after year end for the third consecutive year, and a leaseholder asking at an AGM what the reserve fund was actually being built up for.
Nobody at the meeting could answer that question. The managing agent was not present.
What We Found
Neon's initial audit in month one covered the service charge accounts for the previous three years, all active contracts, the insurance policy, the management agreement, and the reserve fund position. What it revealed was not unusual for a block that has been managed by the same agent for an extended period without independent scrutiny.
1. Three streams of agent income, none of them disclosed
The management agreement set a fee of £8,000 per year. In practice the agent was drawing considerably more than that from the block, through three routes that appeared nowhere in the agreement and nowhere in the accounts:
- Insurance commission — £1,440 per year. The buildings insurance premium was £8,000 and the agent was taking an 18% commission from the insurer for placing and renewing the policy. This was never disclosed to the RTM company or to leaseholders.
- Commission on contractor invoices — £1,200 per year. The agent was applying a percentage uplift to contractor invoices before passing them through to the service charge account. Leaseholders were paying more than the contractor was being paid, and the difference went to the agent.
- Ad hoc charges — £800 per year. Additional fees levied on top of the management fee for work most agents include as standard: consultation notice administration, arrears letters, extra site visits, and attendance at the AGM.
Together these added £3,440 a year to the block's costs on top of the headline £8,000 fee — an effective 43% uplift on the management fee that nobody had agreed to and nobody could see.
2. Buildings insurance — never tested at renewal
The £8,000 premium had been renewed with the same insurer for seven consecutive years. No alternative quotations had been sought at any renewal, and the declared reinstatement value had not been reviewed since the RTM was formed. Removing the commission alone would have brought the premium down; a fresh valuation and a competitive rebroke brought it down considerably further.
3. Communal cleaning contract — never retendered
The communal cleaning contract at £8,400 per year had never been retendered. Two competitive quotes obtained during the audit came in at £5,200 and £5,800 for equivalent scope, putting the incumbent 50% above market rate. The contractor was also not performing particularly well — a fact noted in leaseholder correspondence that had been acknowledged but not acted on.
4. Management fee — never benchmarked
The £8,000 fee was equivalent to £364 per flat. It had been carried forward from the original appointment with annual uplifts applied and had never been tested against the market. For a 22-flat walk-up block with no lift, that sits at the upper end of what agents in North London charge. Neon's fee for the same scope, quoted competitively alongside two other agents during the directors' selection process, was £6,200 per year — £282 per flat.
5. Reserve fund — a round number with nothing behind it
The reserve fund contribution was £6,000 per year across the block. There was nothing wrong with the amount. What was wrong was that no component schedule had ever been prepared, so nobody — including the agent — could say what the money was being accumulated for, when it would be needed, or whether £6,000 was too much or too little.
6. Accounts — consistently late
Service charge accounts had been produced at an average of 8.7 months after year end over the previous three years. The Leasehold and Freehold Reform Act 2024 requires accounts within six months. Late accounts mean leaseholders cannot reconcile what they have paid against what was spent, cannot identify overcharging, and cannot challenge costs within the statutory time limit.
Every element identified in this audit — undisclosed commission on insurance and on contractor invoices, ad hoc charges layered on an agreed fee, untendered contracts, an unbenchmarked management fee, a reserve fund with no schedule behind it, and late accounts — is common in blocks managed by agents who have held an account for many years without competitive review. It is not necessarily malicious. It is the natural result of an absence of accountability. The RTM company did not ask for full income disclosure, did not require competitive tendering, and did not set a deadline for accounts production. The agent filled the vacuum with arrangements that suited the agent. This is why oversight matters.
What We Did — Month by Month
Reviewed three years of service charge accounts, all active contracts, the insurance policy schedule, the management agreement, and the reserve fund position. Traced contractor invoices back to the contractors themselves to establish what had actually been paid. Produced a written findings report shared with all three RTM directors, quantifying the financial impact of each issue.
Buildings insurance rebroked on a fully transparent, fee-based footing with a fresh reinstatement valuation. The premium came in at £3,500 against the previous £8,000, with our placement fee disclosed in full in the accounts. At the same time the ad hoc charging schedule and the contractor invoice uplift were both abolished outright: contractor invoices now pass through to the service charge at the price the contractor charged, and consultation admin, arrears correspondence, site visits and AGM attendance all sit inside the management fee.
Competitive tender for communal cleaning. Three contractors visited the block and quoted. New contract awarded at £5,600 per year with clearer scope and a monthly sign-off process. Saving of £2,800 per year. Leaseholders noticed the difference in cleanliness within the first month — the new contractor was also better.
The remaining contractors were reviewed, rates confirmed in writing directly with each one, and the schedule of agreed rates circulated to the RTM directors. Every contractor now invoices the block directly and the original invoices are visible to the directors. There is no route by which a margin can be added between the contractor and the service charge account.
A full 20-year component schedule was prepared covering the flat roof, the communal boiler, the car park deck and drainage, communal internal decoration, the electrical installation, and the door entry system. It confirmed that the existing £6,000 contribution was broadly the right number, with the roof due at around year nine and the boiler at around year eight. The contribution stayed where it was; what changed is that the directors can now show any leaseholder exactly what it is for.
The new annual service charge budget was set using the actual contract costs, the benchmarked management fee, and the component schedule contribution. Accounts for the previous year were produced within six months of year end — for the first time in at least three years. A full leaseholder letter was issued explaining every line of the new budget with the rationale for each change. Not a single leaseholder raised a challenge to the new demands.
The Result
| Cost item | Previous (per year) | New (per year) | Annual saving |
|---|---|---|---|
| Buildings insurance premium | £8,000 | £3,500 | £4,500 |
| of which: insurance commission to agent | £1,440 | £0 | included above |
| Communal cleaning | £8,400 | £5,600 | £2,800 |
| Management fee | £8,000 | £6,200 | £1,800 |
| Commission on contractor invoices | £1,200 | £0 | £1,200 |
| Agent ad hoc fees | £800 | £0 | £800 |
| Reserve fund contribution | £6,000 | £6,000 | no change |
| Total, lines reviewed | £32,400 | £21,300 | £11,100 |
£3,440 of the annual saving came from income the agent was drawing from the block that the RTM directors did not know about: commission on the insurance policy, a margin added to contractor invoices, and charges levied on top of an agreed management fee. None of it appeared in the management agreement. None of it appeared in the accounts. The directors were not careless — they simply had no way of seeing it, because nothing they were sent disclosed it. That is the point. A cost you cannot see is a cost you cannot challenge, and it recurs every year until somebody looks.
The reserve contribution stayed at £6,000 per year, and that is deliberate. A case study is not obliged to show every line falling. The component schedule confirmed the figure was broadly right for a block of this age and specification, with a flat roof due at around year nine and the communal boiler at around year eight. Reducing it would have saved leaseholders money this year and cost them considerably more later. What changed is that the number is now evidenced rather than assumed, and any leaseholder who asks what they are contributing towards can be shown the schedule.
What This Means for Similar Blocks
This block is not unusual. The pattern — undisclosed commission on insurance and on contractor invoices, ad hoc charges layered on an agreed fee, untendered long-running contracts, a management fee that has never been benchmarked, and late accounts — appears in a significant proportion of blocks managed by agents who have held the same account for five or more years without independent review.
Four questions any RTM company can ask their current agent today:
- What is your total income from this block, including everything that is not the management fee? Ask for it in writing and ask for it as a number. Commission on insurance, margin on contractor invoices, and ad hoc charges are all income from your block. In this case they came to £3,440 a year on top of an £8,000 fee.
- Does the price we pay a contractor match the price the contractor invoices you? If your agent cannot show you the underlying contractor invoice, you have no way of knowing whether a margin is being added. Ask for the originals, not the agent's own re-issued paperwork.
- When were our main contracts and our insurance last competitively tested? If the answer is more than three years ago, or never, you are almost certainly overpaying. Insurance in particular is worth testing at every renewal.
- What is the component schedule behind our reserve fund contribution? If there is no component schedule, the contribution is a guess. It may be too high or too low — either is a problem for leaseholders.
A managing agent who cannot answer all four questions clearly and immediately is not managing your block to the standard you should expect.
Key Takeaways
Hidden agent income is rarely a single line
In this block it came from three directions at once: 18% commission on the insurance premium, a margin quietly added to contractor invoices before they reached the service charge account, and a schedule of ad hoc charges layered on top of an agreed management fee. Individually each looked small. Together they came to £3,440 a year — 43% on top of the headline fee, none of it disclosed and none of it visible in the accounts.
Prices that are never tested always drift above market rate
The cleaning contractor was delivering adequate service at 50% above the market rate, purely because nobody had ever asked another firm to quote. The same applied to the £8,000 insurance premium, renewed unchallenged for seven years, and to the agent's own management fee. Annual uplifts applied without competitive pressure always produce above-market pricing over time. Every major contract, including the management agreement itself, should be retested at the end of each term rather than rolled over.
Late accounts hide problems — and create them
Accounts arriving nine months after year end meant leaseholders could not identify overcharging within the statutory challenge window, could not see the contractor margin, and had no basis for holding the agent accountable for budget against actual variances. Transparent, timely accounts are the foundation of good block management — not an administrative nice-to-have.
Switching managing agents is far less disruptive than most RTM directors fear
The handover from the previous agent to Neon took six weeks. There was no disruption to maintenance, no gap in emergency cover, and no communication failure with leaseholders. The improvements were visible within the first month. RTM directors who are dissatisfied with their current agent but have put off making a change because it seems complicated should know that a well-managed transition is routine — and the cost of not switching, in money and in stress, is usually far higher than the transition process itself.
Frequently Asked Questions
Very common. Insurance commission — paid by the insurer to the placing agent as a percentage of the premium — has been standard practice in the block management industry for many years. Commissions typically range from 10% to 25% of the annual premium. The problem is not the commission itself but the failure to disclose it to the RTM company and leaseholders, which is a conflict of interest. The Leasehold and Freehold Reform Act 2024 strengthened the disclosure requirements for agents, but the obligation to disclose existed before this. Any agent currently earning undisclosed commission from your block's insurance policy is operating contrary to their transparency obligations and against the interests of leaseholders.
Usually they cannot, from the paperwork alone. Where an agent adds a percentage before passing a cost through to the service charge, what leaseholders see is a single invoice for the higher figure, and nothing on its face indicates the contractor was paid less. The only reliable test is to go back to the contractor. Under section 22 of the Landlord and Tenant Act 1985 leaseholders who have requested a summary of costs have the right to inspect the supporting documents, including the original invoices and receipts. If the agent's paperwork and the contractor's own invoice show different figures for the same job, ask for an explanation of the difference in writing. In this block the difference amounted to £1,200 a year across the contractor spend.
Potentially yes, though the position is not straightforward and specialist legal advice is needed. Where an agent has earned undisclosed commission on a transaction paid for from the service charge fund, leaseholders may have grounds to challenge the associated cost as unreasonably incurred at the First-tier Tribunal, on the basis that the true cost was inflated. They may also have a claim against the agent directly for breach of fiduciary duty. The strength of any claim depends on the specific circumstances, the contract terms, and the evidence available. The first step is to establish the facts — request in writing that the agent discloses all income earned from the block over the period in question, from every source.
Not automatically. £8,000 across 22 flats is £364 per flat per year, which sits at the upper end of the range for a walk-up block of this size in North London but is not outside it. The issue here was not the headline number but the absence of any test behind it: the fee had been uplifted annually since the original appointment without ever being quoted against another agent, and it was not the real figure anyway once the ad hoc charges and commissions were added. A fee is reasonable if the scope justifies it and the RTM company has satisfied itself of that. What is not defensible is a fee nobody has ever checked, sitting on top of income nobody has ever disclosed. Neon's fee for the same scope was £6,200, quoted competitively against two other agents as part of the directors' selection process.
Because it was broadly the right number. The 20-year component schedule prepared in month five identified the major costs the building is likely to face — flat roof replacement at around year nine, communal boiler replacement at around year eight, car park deck and drainage, communal decoration, the electrical installation and the door entry system — and calculated the annual contribution needed to have funds available when each falls due. That calculation supported the existing £6,000. Cutting it would have produced a better-looking headline saving this year and a Section 20 bill the block could not meet later. The change worth having is not that the number moved but that it is now evidenced: the directors can show any leaseholder what the contribution is for and when it will be spent. The schedule is reviewed every three to five years.
For a block of this size, the handover from the previous agent to Neon took six weeks from the point of formal notice. This covered the transfer of the service charge accounts and financial records, the leaseholder register, the compliance documentation (fire risk assessment, asbestos management plan, electrical installation condition report, and gas safety records for the communal boiler), and the key register. All active contracts were reviewed and either transferred or terminated in accordance with their terms. Leaseholders were notified of the change with new contact details two weeks before the transition date. There was no gap in service, no communication failure, and no maintenance issue during the transition that was not handled promptly. Most well-managed handovers take between four and eight weeks.
Is your block's service charge higher than it should be?
If your agent cannot tell you their total income from your block, show you the original contractor invoices, or produce the component schedule behind your reserve fund, the chances are your leaseholders are overpaying. Talk to Neon and we will give you an honest picture of where you stand.
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