What are Service Charges?

By on Tuesday, January 23rd, 2024 in Lettings, Property Management, Sales.

Leaseholders across the country face the prospect of higher service charges this year as 12 months of rising inflation trickle down to service charges – a mandatory payment that you pay for services in your building.

It was reported in the summer of 2023 that Service charges for apartments in England and Wales had jumped 51.7% since 2018 due to the cost of implementing fires safety measures since the tragic events of Grenfell Tower and the increased cost of building materials and insurance.

Service charges, or maintenance costs, can include the cost of building insurance, the general upkeep of communal areas including, cleaning, lighting, lift maintenance, estates or development areas such as gardens and car parks. The charge will also cover the collection of service charges and preparations of financial budgets and accounts for the building.

The money is typically collected by a managing agent who is responsible for overseeing these payments and ensuring they are both transparent and reasonable. If you are a homeowner, the terms of this charge will be in the lease you signed when you purchased the property. If you are a tenant, it is likely it will be included in your rent.

In the UK, there is no legislation that caps how much service charges can rise by each year but it is usually the case that the most desirable apartment blocks with additional services have higher service charges. It is also the case that blocks with lower service charges can be less desirable.

For leaseholders in purpose-built apartment blocks, service charges in London typically range between £5,000 to £10,000 per annum averaging approx. £10/sq. ft. This means that for one-bedroom apartments the annual charge is between £4,500 and £6,000 pa, for two bedroom apartments the charges are typically between £6,000 and £10,000 pa and for larger three bedroom apartments the charges are often in excess of £10,000 pa. These charges usually include an annual contribution into a building reserve fund, which the managing agents hold in a client account to assist with the cost of future works.

The fee that the managing agent receives for providing services will be a small percentage of the annual service charges, often equating to a fixed sum of between £400 – £600 per year per flat.

If you and other residents in the building have concerns about the cost of the services being provided or are unhappy with how the agent is managing your funds – or the companies they are appointing and the prices they are negotiating – you may also be able to switch to a different management company. If at least half of the residents agree with your concerns, leaseholders can also exercise their “right to manage” (RTM) – in other words, take control of the management of their building but that does not guarantee that the costs of managing the building can be reduced.

Your lease will stipulate the services that can be included in the service charge budget – anything outside of this cannot be billed to you.

What are Service Charges?
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