What are service charges?
Service charges are collected for the maintenance, insurance, repair of the building and communal areas plus the employment of staff and management of the property.
Service charges can be split in to three sections:-
Reserve funds - which are for long term expenditure, for example roof replacement.
Cyclical expenses – which are for more regular expenses like external and communal area decoration.
Day to Day expenses – which are for the cleaning, insurance, salaries etc and other items which are payable each year.
Service charges can vary each year dependent on the expenditure due for that period and they are required to be reasonable.
Details of what is included to be paid with the service charges is set out in the lease and all contributions will be met by the leaseholders as it is not usual for the landlord to contribute to these costs.
When purchasing a leasehold flat is important to find out what the current and future service charges are and what the level of the reserve fund may be for any major works that could be planned.
Service charges apportionment should be clarified in the lease, unfortunately this is not always done well, and leases often refer to the amount payable by each leaseholder to be fair and reasonable which could be determined to be, for example, the rateable value or the square footage of the property.
Where leases do state more specifically how the service charges should be apportioned it is often by using a fraction or percentage, for example, if there are 10 flats then each flat will pay one tenth or 10% of the total service charges expenditure. A variable percentage could also be used where there are properties with varying numbers of bedrooms, for example 10 flats, 5 with one bedroom and 5 with two bedrooms would be shown as 8% payable for those with 1 bedroom and 12% for those with two bedrooms.
Lease wordings can often be quite difficult to understand - if in doubt check with your solicitor.
Service charge requests – from 1st October 2007 with enactment of Section 153 of the Commonhold and Leasehold Reform Act 2002 S 153 requires that a prescribed summary of leaseholders' rights and obligations in prescribed text must accompany all demands for payment of a service charge.
In the "pipeline" is Section 152 - a requirement for annual statements of account to be provided to leaseholders. However, it has been announced that commencement will be unlikely before October 2008.
The document Service Charges - Summary of tenants' rights and obligations is available as a pdf file which can be downloaded and printed.
Click here to open the document Service Charges - Summary of tenants' rights and obligations available as a PDF file.Open PDF file(94 Kb)
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