Picture the scene: you’ve just bought your new apartment, you’re all moved in and ready to put your feet up, and then a service charge invoice comes through the letterbox.
Although service charges are something your solicitor should discuss with you when purchasing a property, there are occasions where this doesn’t happen, and many leaseholders are left with a lot of questions. Luckily, we’ve put together a guide to the basics, giving you the need to know about what your service charges are paying for and why.
Okay, so you’ve got the invoice – but what exactly is a service charge?
It goes without saying that when you own a property, you are responsible for its upkeep as the owner – it’s up to you to keep it clean, tidy, and in good repair. You wouldn’t expect your neighbours to do any of this for you, and you certainly wouldn’t expect to do it for them.
But what happens when you and your neighbours share an area that you all use and have access to? If you share a garden, for example, who pays for the lawnmower, and whose job is it to spend every other Sunday weeding?
This is where service charge comes in.
Wherever a group of properties share common facilities or areas, there will often be a management agency responsible for looking after them. This managing agent takes care of the maintenance and upkeep of any shared areas on behalf of residents, and collects a service charge from each of the property owners to cover the costs, with each property paying a proportion. This way, every owner pays a fair share, and the work is taken care of for them.
Although any properties that share common areas or utilities may have a service charge to pay, it’s most common with flats or apartments, where the service charge covers the costs of essentials like cleaning hallways and stairwells, inspecting and repairing lifts, and maintaining communal gardens.
Barring some unforeseen legal loophole or lucky circumstance, if you own a property in a building or on an estate that has a service charge, you will more than likely have to pay a proportion towards it. It’s not something you can just opt out of.
The responsibility to contribute to the service charge will be included in the original Lease or TP1 documents for your property. A Lease or TP1 essentially contains the ‘small print’ for your property – any terms and conditions you need to perform or abide by as the owner. Paying towards the service charge is almost always one of these conditions.
When you purchased your property, you will have signed your agreement to abide by the terms of this Lease/TP1. This is a fundamental part of the transfer of ownership, and is legally binding.
As a result, if you own the property, you will have agreed to pay any applicable service charge.
Before the start of each service charge year, the managing agent will create a budget for that period. Although most service charge years coincide with the calendar year (starting in January and ending in December), the service charge year could be any twelve-month period: May to April, or September to August, for example.
How you should be paying your service charges is determined by your Lease or TP1 documents for the property. The majority of the time, the service charges will be outlined in these documents as payable in advance – this means that you will need to pay the requested service charge to your managing agent at the start of the year in a single, full payment, usually within 28 days or so of being invoiced.
That being said, this can vary, and some Lease/TP1 documents allow for payment by instalments throughout the year, so long as the full service charge is paid off before another service charge invoice becomes due for the next service charge year.
If you’re not entirely sure, it’s best to consult your Lease/TP1, or you can always contact your managing agent for clarification.
At the end of the service charge year, it’s quite possible that you will have an additional amount invoiced to you, or you may be given money back – this depends on what the actual costs of providing services were for that service charge year.
Because the budget is only a best estimate, sometimes services and works can cost more than was budgeted for at the start of the year. When this happens, you will be sent an invoice for something known as a ‘balancing charge’ – this will be your share of any overspend for the year.
If, on the other hand, the services provided by the managing agent have come under the budgeted amount, you will likely see your share of the underspend either added to your service charge account as a credit, or refunded back to your bank.
Because every development, housing estate or apartment building are different, there is no easy definitive answer to this question. As a general rule however, service charges tend to cover the provision and maintenance of any facilities or services that benefit more than one property.
The most obvious of these services is the cleaning and maintenance of shared areas, like hallways and corridors, or the landscaping of shared grounds and green spaces. If your property is in an apartment block, then things like lift servicing and electricity for lighting in shared entryways is also a common feature of service charge budgets.
To find out exactly what is covered by your particular service charge, it’s best to consult a copy of the yearly budget provided by your managing agent.
You may notice that there are other items on your service charge budgets that don’t directly relate to the upkeep of your property however – things like insurance, accounting, and risk assessments, for example. Providing management services can be a complex job, and often goes far beyond simply providing repairs, so it’s not uncommon to find a range of other services listed in your service charge budget.
The chances are this is perfectly normal, and not something to be concerned about. As you can probably guess, there are some things that your managing agent is required to do by law, and these ‘auxiliary’ costs that you see are usually related to that.
Managing agents are required, for example, to create yearly accounts and have them certified by an external account (these are your accounting fees).
If your property is in an apartment block, then the landlord/management company (normally via the managing agent) must insure the building against potential losses, and must complete fire safety inspections and reports on a regular basis.
The agent is also entitled to collect the costs of employing staff and materials and a fee for providing its services, hence the ‘management fee’ – often the most unpopular item that agents charge for, but a necessary one for the managing agent to function.
Although you can withhold your service charge and refuse to pay, it’s rarely a good idea, whatever your reasons.
Remember that Lease/TP1 we mentioned earlier? Most Lease and TP1 documents state that the service charge must be paid within 30 days (sometimes less) of being invoiced to you, and it’s quite common for penalties to be applicable for late payment.
Because of this, it’s always best to pay the service charge as soon as possible, even if you have a dispute or disagreement with the managing agent. This is because paying promptly protects you from late payment charges and possible legal action, and puts the onus on the managing agent to address any dissatisfaction you have with the service you have paid for.
Remember, it’s almost always better to pay the service charge when invoiced – even if you feel you are being charged too much or unfairly. At least by paying the service charge you can avoid additional costs and legal action, giving you space to raise your dispute without additional stress.
It goes without saying that service charges can be a very complicated area to delve into, especially if you’re not familiar with them – that’s the whole point of this article, after all. There are a huge amount of other related issues surrounding them, many of which we’ll discuss in future posts.
For now, if you are looking to understand your service charges better, then the best next step is to familiarise yourself with the charges and services specific to your property – find out what you’re paying for, when you have to pay, and so on.
Most of this should have been communicated to you already by your solicitor or the managing agent, but it’s important that you know for definite. In the meantime, the above has hopefully helped give you a working introduction to the concept of ‘service charges’, and perhaps some reassurance that they are a normal feature of many UK properties.