Understanding Service Charges in Leasehold Properties

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Service charges in leasehold properties are fees charged by landlords to cover maintenance, repairs, and services provided to the building. The lease agreement outlines what services are covered, how charges are calculated, and what landlords can charge for. Landlords can recover reasonable costs, but improvements and management costs are subject to lease terms. Service charges are structured based on the lease agreement, typically covering maintenance, repairs, insurance, and shared amenities. Leaseholders are responsible for paying service charges as outlined in the lease agreement.


Uploaded on Apr 03, 2024 | 1 Views


Understanding Service Charges in Leasehold Properties

PowerPoint presentation about 'Understanding Service Charges in Leasehold Properties'. This presentation describes the topic on Service charges in leasehold properties are fees charged by landlords to cover maintenance, repairs, and services provided to the building. The lease agreement outlines what services are covered, how charges are calculated, and what landlords can charge for. Landlords can recover reasonable costs, but improvements and management costs are subject to lease terms. Service charges are structured based on the lease agreement, typically covering maintenance, repairs, insurance, and shared amenities. Leaseholders are responsible for paying service charges as outlined in the lease agreement. Download this presentation absolutely free.

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  1. Leasehold Information Session Service Charges

  2. What are Service Charges? What are Service Charges? Landlords charge service charges to recover costs in providing services, repairing and maintaining their buildings. The way in which your service charge is organised (for example, what it covers and how it is worked out) is set out in your lease agreement. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, wardens, lighting and cleaning shared areas and so on. The landlord, provides the services and you and any other leaseholders pay for them. The landlord will generally make no financial contribution to the services, but sometimes they have to pay for the services before recovering their costs from leaseholders. Information on what you can be charged and how it is worked out is contained in the Third Schedule of your lease.

  3. What can my Landlord charge me for? What can my Landlord charge me for? The lease will set out details of what the landlord can and cannot charge for and the proportion of the charge that you will have to pay. Generally, the landlord must provide certain services under the lease, and can charge a service charge for doing so. Service charges can go up or down without any limit, but the landlord can only recover costs which are reasonable. The general principle of a lease is that the landlord does not have to provide any service which is not covered by the lease, and the leaseholder does not have to pay for anything that is not specifically set out in the lease. Improvement work: Landlords in the private sector do not state that leaseholders must contribute to costs of work to improve the building. However, leases managed by local authorities and housing associations often do contain such clauses.

  4. Management costs: These can only be charged if the lease says they can. Your lease may state that the landlord can recover a percentage of their costs, or may just refer to a reasonable amount. Legal costs: These must be included in the lease. If your lease allows your landlord to recover legal costs through a service charge, they may well include the cost of recovering arrears. Heating, cleaning, garden maintenance and alarm systems: If your landlord provides these services, and you must pay for them, this should be included in your lease (and usually will be). In some cases, this may be done simply by referring to the landlord s obligations, as set out in one of the schedules to the lease. Usually a lease simply allows the landlord to recover their costs for maintaining and repairing the building (including any management costs), and for general upkeep. The Landlord can claim back any money that has been spent, but as a local authority Southampton City Council cannot make a profit from managing the building.

  5. How are Service Charges worked out? How are Service Charges worked out? The lease will give the dates of the service charge period and how often the payments are due. The service charge period is often a year, but payments may be due every six months or every three months, or in some cases may be charged after the costs have been run up. Your lease will set out the percentage or proportion of the service charge that you must pay. This information is contained in the Third Schedule of your lease but as a general rule relevant share for each item of Service Charge will be: 1. The proportion specified in Part 7 of the Particulars of the actual cost incurred by the Council or its agents in providing the appropriate service specifically for the Flat or the Building (or both) 2. An equal proportion of the costs incurred by the Council or its agents in providing the appropriate service to a larger area than the Building 3. The whole of the cost of the appropriate service for the Flat where this can be separately identified (eg. the insurance premium)

  6. Your lease will say whether you must make advance payments and, if so, whether these are based on the previous year s cost or an estimate of the cost in the year to come. Third Schedule There will often be a final charge due at the end of the year when the actual costs are known, if these are not covered by the payments you (and any other leaseholders) have made. The landlord will send you a bill asking for your share if there is a shortfall. If the total payments leaseholders have already made are more than the actual costs, depending on what it says in the lease the extra money may be used to reduce next year s charge or refunded. Service charges can go up or down without any limit, but the landlord can only recover costs which are reasonable.

  7. The law also expects the landlord to behave in a reasonable manner regarding spending on the building. The landlord has a long-term interest in maintaining the condition and value of their properties. You may have a much shorter-term view if you only intend to live in the property for a few years. These different viewpoints sometimes lead to dispute. A landlord does not usually have to keep the costs to a minimum. However, the law states that service charges must be reasonable and, where costs relate to work or services, the work or services must be of a reasonable standard.

  8. Leaseholders are provided with an estimated statement in March which includes a breakdown of what we predict to spend over the next 12 months. This statement is sent to leaseholders at least 2 weeks before the 1stApril and the financial year runs from 1stApril to 31stMarch. Leaseholders have the choice to pay the service charge in full in advance or set up a monthly payment plan. At the end of the financial year we start working out the exact amount spent on services, maintenance and repairs. We do this by asking each service area to provide us with a list of costs for each property, block of flats, estate or larger area dependant on the type of service. By the end of September we send all leaseholders a final statement showing the actual amount spent. If charges were over or underestimated, their service charge account will be credited or debited accordingly.

  9. In November we start mapping out the estimated service charges for the next financial year. The estimated service charges are usually based on the actual charges provided to leaseholders in September with an uplift based on the Consumer Price Index. The exceptions to this are to variable charges such as routine repairs and electricity costs where we work out an average based on the size of the block. The other exception will be new service charges, where we ask the service area to provide their projected costs. As we do not have a sinking or reserve fund, when major repairs, decorations or modernisation works are going to be carried out we will let leaseholders know the estimated cost of their share in advance and send an invoice for the final costs when the work is completed. These costs are not included in the final statements sent to leaseholders in September and leaseholders are provided more time to settle these accounts.

  10. MARCH Estimated Service Charge Statements sent to Leaseholders FEBRUARY MAY-JUNE Loading information into accounting system and creating Est. Statements Requesting final costs from Service Areas SERVICE CHARGE JOURNEY NOVEMBER-JANUARY Working out Estimated Service Charges based on Actual costs and CPI JULY-SEPTEMBER Loading information into accounting system and creating Actual Statements SEPTEMBER Actual Service Charge Statements sent to Leaseholders

  11. How can I get more information on what I am How can I get more information on what I am being charged for? being charged for? Leaseholders, or the secretary of a recognised tenants association, have a legal right to ask the landlord for a summary of the service charge account. The request must be in writing (email or letter is acceptable) and can be sent directly to the landlord or to the managing agent. It can ask for a summary of the relevant costs relating to the service charges for the last accounting year or, if accounts are not kept by accounting years, the past 12 months. If a landlord receives a request for a summary of the service charge account, they must provide it within one month (or within six months of the end of the 12- month accounting period, whichever is later). By law, landlords must consult leaseholders before carrying out work above a certain value or entering into a long-term agreement for providing services.

  12. The general principle is that the landlord decides how to spend the service charges, which is the leaseholders money. However, the law protects people who pay service charges and sets the following responsibilities which the landlord must meet. The landlord must consult you before starting any work which will cost you more than 250 (qualifying work), or entering into a long-term contract which will cost you more than 100 for any leaseholder in any accounting year (a qualifying long-term agreement ). Demands for payment must include the landlord s name and address and be accompanied by a summary of your rights and obligations. Landlords must account for all spending during the year by providing a summary of relevant costs if you or the secretary of the recognised tenants association asks for this in writing. After the landlord has provided the summary, you or the secretary can request to inspect the relevant documents. Charges must be reasonable. You can challenge them at the tribunal if you don t believe they are.

  13. How can I challenge a Service Charge if I dont How can I challenge a Service Charge if I don t think it is correct? think it is correct? You should first ask for further information from your landlord on the charges, and if required, request a breakdown of the costs. Still not satisfied? If you think the charge is either not valid or unreasonable you can apply to the The First-tier Tribunal. They deal with settling of disputes in relation to leasehold property and those in the private rented sector including service charge disputes, lease variations and the determination of premiums for freehold purchase and lease extensions. There is a fixed fee of 100 for most applications to the tribunal. Not all disputes about service charges end up at the tribunal or the county court. The courts and tribunal should be a last resort and leaseholders and landlords should to try to settle their issues by agreement and discussion, if possible.

  14. Questions? Questions?

  15. Want more information? Visit Want more information? Visit www.lease-advice.org/ www.southampton.gov.uk/housing/home-owners/

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