So, hopefully you have read through Part One to give the structure and explanation of what service charges are. Most importantly, service charges are collected in accordance with the lease. However, there are many occasions where leaseholders pay monthly by standing order to the fund, however, the demands sent out by the agent should still be in line with the dates in the lease. Some leases state quarterly, bi annual or annually. with specific dates. It is important to keep to this as even if all leaseholders currently agree to monthly payments (and this should only be permitted if agreed by the directors of the freehold/RTM company) flats change hands, arrears can start to build up and it becomes a complete mess.

Service charges are to be held in trust, in a designated bank account set up by the managing agent as per Section 42 and 42a of the Landlord and Tenant Act 1987. Interest is to be paid into the fund and is not held by the agent. Ideally a reserve fund is permitted in the lease and is also collected for which will be talked about in another post as this is quite an important and helpful fund to have for any building.

Section 19 of the Landlord and Tenant Act 1985 (LTA 1985) state that service charges should be reasonable. Therefore, when setting budgets and sending out demands for payment to leaseholders, the figures being requested should have been looked into carefully by the agent, compared to the previous year, allowing for any surplus already in place for the service charges and taking into account any works due. This all must be agreed with the agent’s client prior to sending out paperwork. If a leaseholder does not agree that they are reasonable, they can apply to the First Tier Tribunal (Property Chamber) to dispute them.

Again, referring to the lease, they will generally state (although not necessarily clearly #legaljargon ) what is permitted to be collected as part of the service charge i.e. landlord cost recovery for providing services to the building (generally not for improvements) employing managing agents, gardening, surveyors, accountants etc.

It is important to note that in Section 18 of the LTA 1985, it defines what a service charge is. Particularly, they are variable and not fixed (in most cases - again leases will need to be referred to) this is where they can change annually according to the actual or estimated expenditure. However, this does not overrule what is contained in the lease. Always lease first!

Further posts to come on budgets, major works and reserve funds so sign up for notifications when these are posted and as always please leave a comment and hit the like button if you found this useful!