Service charges are funds collected in accordance with your lease that are based on a budget created by the freeholder/directors of a management company or managing agent. They are used for all matters related to building expenditure such as repairs, decoration, commonway electricity, gas, water, cleaners, gardeners, managing agents, accountants, the list can sometimes seem endless!

If you read one my previous posts on leases, you will know that service charges are based on apportionments which are percentages according to the square footage of your flat. The percentages for all flats in the building should ideally add up to 100% (not all do which can cause issues so this should be checked as soon as possible) Let’s say the annual budget for the building has been set at £5,000.00. Your apportionment may be 14.8700% (because its never simple!) which would mean that you would be paying £743.50 a year in service charges. To be clear, ground rent and service charges are separate and not to be confused.

The lease will state when service charges are due and hopefully the demands are sent out in accordance with this. They can be due annually, 6 monthly, quarterly and it is worth finding out when yours are due from your lease. Should you happen to get your demand on a different date to that specified in the lease, it is worth pointing this out to your freeholder/managing agent.

It is important to note that if service charge demands are not sent out according to the lease and if they are not accompanied by a ‘Summary of tenants rights and obligations’ (Section 21b Landlord and Tenant Act 1985) then a leaseholder is not obligated to pay the service charge under Section 21a Landlord and Tenant Act 1985. The demands must also include the Landlords name and address for service as per Section 47 & 48 of The Landlord and Tenant Act 1987 (unless you pay to a management company that is named in the lease). These are the only reasons as to why a service charge can be withheld and once these two points have been rectified, service charges are due. It is important to note that withholding payment does not benefit anyone, as no payments lead to lack of funds for the building. Managing agents cannot legally instruct services with no funds available. Therefore, it is of utmost importance to ensure the correct procedures are being followed and communication is maintained.

On occasion, some leases can stipulate a nominal service charge, say £60 per quarter from each flat and the remainder of the service charges are collected as a deficit on the year end accounts. This means that when the annual accounts for the building come through at the year end, it will show an amount that is to be collected from all leaseholders to cover the expenditure that was incurred for that year.

Budgeting for your service charge is an important part of management and I will cover this in another post soon.

Feel free to comment on any of the areas covered or if you have any questions do let me know.

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