At Inspired Property Management we like to help our clients and customers and ensure they fully understand what a service charge is and why they have to pay it.
Most new apartment tenants have no idea what a service charge is or why it’s required. IPM will guide you through understanding your service charge and the reason it is required.
What is a service charge?
Service charges are payments made by residents for services that are provided by the landlord or managing agent in respect of common parts of buildings and external communal areas of the estate. For example; if you live in a flat, you are required to pay services for internal communal areas in the building that your flat is situated as well as external communal areas. Examples of these charges could be internal cleaning, painting and gardening. Examples of further services you may be charged for are: sweeping of footpaths, litter picking and gardening to communal areas. In short, service charges are costs that are incurred by landlords for the upkeep of communal areas which are then charged to residents under the terms of their lease or transfer agreements. Your lease will detail more information on your services charge and may specify your individual percentage share of estate/block costs.
How do service charges work?
Estimates At the beginning of your service charge year (which is detailed in your lease) we will send you a service charge estimate. This letter estimates the amount we expect to spend on your block/estate during the next year. IPM calculate the estimates based on known servicing costs, contracts and prior year actual costs. You then pay for the full service charge year based on the amount listed within the estimate. Service Charges are variable, meaning that they will change each year depending on the amount spent on your block or estate. Your estimate may increase some years and decrease in others.
Once the financial year ends, IPM have 6 months to review all expenditure carried out to each block and estate for the past 12 months. Once we have reviewed all of the expenditure, we post out an end of year statement to each resident which details the actual costs incurred. The estimated service charge amount is also shown on this statement as a credit; the charges are shown as a debit amount. The end of year statement then shows whether overall your service charge for that year is in credit or in deficit.
Please note – your estimated service charge amount on your final account statement will be less any ground rent or sinking fund payments. This means you only pay for the services that have been provided. IPM do not make a profit from service charges as we are only allowed to pass on costs that we have incurred. You can check your actual account against your estimate to see the exact differences between estimated costs for each element and the actual costs for each element. If we are unable to finalise the review of expenditure to your block or estate within 6 months we will send you a Section 20B Notice. This is a formal notice required under service charge legislation which sets out the amount we estimate your service charge might be.
If your end of year statement of account is in credit this means that the amount you have paid towards your service charges for the year is more than the actual amount spent and money is due back to you.
If your account is in debit this means that the amount that you have paid towards your service charges for the year is less than the actual amount spent. You are liable for the additional costs under the terms of your lease.
In addition to your service charges depending on your lease you may have to pay the following additional charges. Rent is payable if you are a shared owner and have not purchased the full 100% of your property. In this situation, under the terms of your lease you will be required to pay rent on the remaining share of your property. More details on your rent and how this is increased each year is detailed within you lease.
Some leases allow IPM to collect a ground rent for leaseholder and shared owners. Please refer to your lease for more information on the amount of ground rent and information on when/how this increases.
Some leases allow IPM to collect a sinking fund from leaseholders and shared owners. Sinking fund monies are held separately from service charges in a bank account. They are collected each year and usually spent on major works for the block / estate; for example: A lift replacement, a new roof for the block or re laying tarmac on a road within the estate. Please refer to your lease for more information on the sinking fund.
Help and Support
If you still have queries surrounding your end of year service charge account then please contact our customer service centre on 01302 729500. They will be able to direct you to the correct team who can assist you with your query.
Outside of IPM there are also other organisations that may be able to assist you with your queries. The Leasehold Advisory Service can provide free information, initial advice and guidance to members of the public about residential leasehold law.