Service Charge

Leasehold Property - FAQ

What is a service charge?

How is service charge contribution calculated?


Will I be responsible for my seller's unpaid contribution?


How will I know the historic service charge position?


What are reserve funds?


What happened if I fail to pay the rent or service charge?


Challenging service charges

 

 

What is a service charge?

These are payments to the Landlord or Management Company for services provided collectively to the tenants in a building or development.  Service charges can vary from year to year; they can go up or down without limit but they may be open to challenge under various Housing Acts to establish that they are reasonable.  Before major expenditure is incurred a notice giving details of cost must be circulated to tenants and most well organised blocks will provide a budget of the current and next year anticipated expenditures.

The charges may include:

  • the building and third party liability insurance
  • the cost of repairs, painting and maintenance
  • communal light and heat
  • communal carpeting and decoration
  • cleaning
  • main gate/door security
  • gardening
  • porter/caretaker and his salary, and accommodation (if on site)
  • garden tools and plants
  • communal water rates
  • lifts
  • water tanks etc.
  • communal heating and hot water
  • management fees and charges
  • payment towards a sinking/reserve fund
  • a ‘sweep up’ clause that enables the Landlord to make a charge for items not specifically mentioned elsewhere.  
     

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How is service charge contribution calculated?

The amount of the service charge may be formulated as a percentage or fraction of the whole, this apportionment may be based on the size of the apartment or as a set percentage. The lease may provide for a specified amount of money to be paid during the year ‘on account’ of the charges.  In the latter case, when the accounts are audited at the year-end, tenants are credited with any over payment, or asked to pay an ‘excess’ for the previous year to cover any under collection.

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Will I be responsibility for my seller's unpaid contribution?

The service charge year is not necessarily the calendar year but will be specified in the lease.  It may be necessary for the sellers’ solicitors to retain an agreed sum of money to cover the payment of the excess charge (when known) for the period of the seller’s ownership.  It is unlikely that the seller or buyer can be told the exact figure by the Landlord or the managing agents, as this will only be ascertainable when the complete year’s accounts are finalised.  The amount of the retention therefore is a best estimate based on available information.

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How will I know the historic service charge position?

Before you commit to buy the flat we will ask to see:

  • audited service charge accounts for the last 3 years
  • the current ground rent and service charge demand
  • an estimate for service charges for the current year, if available.
     

These may not be available quickly, but we will send you on what we receive.   Please inspect these carefully and raise with us any items/entries of concern.  Problems may be encountered with absentee landlords or where there has been an insolvency or the landlord entity has been struck off or is otherwise uncooperative.

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What are reserve funds?

Many leases provide for the Landlord to collect sums in advance to create a reserve or ‘sinking’ fund to ensure sufficient money is available for future scheduled major works, such as external decoration or lift replacement.   The lease will set out the sums involved and when regular, cyclical maintenance works are dueUnspent contributions to the reserve fund are not repayable when the flat is sold.

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What happened if I fail to pay the rent or service charge?

Wherea tenant fails to pay the rent and service charge or persistently breaches the terms of the lease, then ultimately the Court can allow the Landlord to ‘forfeit’ the lease and repossess the flat.  There is now much legislation that affects this topic to protect the tenant who will be at risk as a minimum to costs should the Landlord be forced to take enforcement action.

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Challenging service charges

Tenants can apply to the Leasehold Valuation Tribunal (LVT) to seek a determination of reasonableness of the charges.

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