Service charges explained
A service charge is created in circumstances where your development has some shared amenity. The most common example of this is apartment developments although in recent times builders often include “estate charges” where there is an area of public open space on the development.
To fully understand why you pay a service charge for your apartment it is important to know the fundamental point’s common to most residential leases.
A service charge is necessary when you have shared amenities to establish responsibility for the upkeep and maintenance of the communal areas and common parts. This is because a mechanism needs to be put in place for the owners to contribute towards the cost of the upkeep of these areas. The modern way to achieve this is for the lease to incorporate a management company. Many older leases do not have a management company and responsibility for the common parts and communal areas lies with the ground landlord. In these circumstances the landlord can arbitrarily decide on the level of charges and cannot be challenged by tenants. The only recourse being to lodge an application with the First Tier Tribunal (Property Chamber) for them to determine a reasonable service charge.
Where there is a management company in place the owners of the apartments have a say in the level of services and this has a consequence on the service charge. The majority of apartment developments we administer are the “management company” type and we find that these work very well particularly where residents are interested in having some input. In situations where the residents do not show much interest we arrange services in accordance with our experience and best practice.
What items are included in the service charge?
The majority of leases specify the following as items for which owners are required to make a contribution:-
- Maintenance of the main structure of the building including the roof, main walls, communal staircase etc.
- Maintenance of car parks, bin stores, cycle stores
- Building & Public Liability Insurance
- Day to day services such as cleaning, gardening and window cleaning
- Communal lighting and fire alarm maintenance & service
- All statutory safety and fire risk assessments
- Painting and decorating
- Communal intercom and television systems
- Reserve fund for major future capital expenditure
- Managing Agents fees
What does the Managing Agent do for their fee?
We have found that there is a common misconception amongst leaseholders that the service charge they pay all goes into the Managing Agents pocket.
This isn’t the case, the Managing Agent earns a fixed fee for the management of each site and this is clearly shown on the annual service charge budget and accounts.
The vast majority of service charge income is spent on the items listed under “what is included in the service charge”.
Services provided by your Managing Agent are as follows:-
- Assess the level of annual service charge
- Collection of service charge from each lessee
- Keep record of income & expenditure for the development
- Liaise with Accountants for the preparation of accounts
- Respond to residents queries and complaints
- Appoint and monitor gardeners, cleaners, window cleaners
- Arrange repairs when required
- Supervision of major contracts
- Implement buildings & public liability insurance
- Enforce breaches of the lease
- Periodic site inspections
- Ensure compliance with regard to health & safety and fire risk assessments