Welcome to the Property Management Guide quick explanation of property service charges.
In short, property service charges are a way of having everyone pay towards shared costs for parts of a property that no single person is directly responsible, like stairs or lifts, the main walls and roof, and outside areas like the garden or carpark.
Of course, the buck for looking after these communal features stops with the main owner or landlord, and although you might think it would make sense for the landlord simply to cover the costs and charge the tenants slightly more rent as necessary, in reality a separate service charge account is maintained to recharge the exact costs separately to each occupier or tenant.
Here are the five main points about property service charges you should know.
1. Property Service Charges are Governed by Leases and Legislation
The lease document between a landlord and tenant should explain how the service charge operates and what can be charged, with general legislation and the law of the land shaping the principles, particularly with residential property. In addition, as well as fully checking the whole lease and taking good legal advice, see if there is any general regulation of a landlord or managing agents to look into.
2. There Should be an Annual Budget
A “best judgement” on what the next year’s costs will be – which everyone contributes towards (including the landlord for any vacant portions of the building). Money is needed upfront to pay contractors and suppliers, therefore at least part-payments are always necessary.
We have a service charge budget resource available here.
3. The Annual Accounts Will Explain What Has Been Actually Spent Over the Last Year
The accounts, drawn up by the landlord’s or managing agent’s accounting people or a third party, will show if anyone needs to pay a bit more in or get some money back. This process can drag on for months or even years though, so get hold of them quickly to avoid any nasty surprises.
Gere are 10 popular types of service charge costs to consider.
4. Both the Landlord and Tenant Have Rights
A landlord is entitled to payment for bills and to carry out work, and a tenant has the right to receiving current and timely information, as well as to examine costs in detail.
5. Look at the Past and Future as Well as Current Costs to See the Bigger Picture
Look out for things like big redecorations or new-plant or roofing costs lurking around the corner, and see if there’s any “sinking” or reserve fund money kept aside to help towards them.
For more help and advice on property service charges, go to www.propertymanagementguide.co.uk/servicecharges to find out about the “Property Service Charge Snappy Summary”. This explains all the ins and outs of service charges for both landlords and tenants using the principles from the Property Management Guide from Amazon best-seller Andrew Duncan.