POSTED 27 September 2018 Lettings

Property Service Charge - What is it and What does it cover

What is a property service charge? 

Service charges are paid by leaseholders to freeholders (also known as landlords) to cover the cost of maintaining the building in which their home is located. The charges can become a cause of friction between leaseholders and landlords, particularly if charges are too high or no information is given on the services provided.

What do the costs consist of?

The exact details of service charges change from case to case, to get a full rundown you can refer to your lease agreement. However, they typically cover general maintenance and repairs to both the inside and outside of a building, as well as the building’s insurance.

The charges are normally universal within a building, whether or not an occupant uses all of the equipment covered. For instance, a resident of a building who lives on the ground floor and never uses the lift, would in all probability, still have to pay for its upkeep.

Reserve funds

In addition to the above costs, leaseholders normally have to pay into a reserve fund, also known as a sinking fund. This is money that is collected speculatively, in anticipation that there will be irregular and expensive works required at some point in the future, such as the installation of a security system or a lift replacement.

The fund is collected in advance because this ensures all residents contribute to the long term upkeep of a building, not just those who are living there at the time when the works happen to be taking place. Moreover, by collecting the money incrementally, this helps to even out charges and avoid large one off payments – which can be difficult to budget for.

Dealing with disputes

Disputes are not uncommon between disgruntled occupants and landlords, and may arise for a number of reasons:

  • The charge is too high
  • The work carried out is of a poor level, or not carried out at all
  • No information is provided on what the service charges are being spent on
  • Leaseholders are charged for things that are not covered in their lease

Know your rights

You don’t have to pay service charges until your landlord sends you a request for payment.

For whatever reason, whether purely out of interest or with a specific query, you can ask your landlord to give you a summary of the service charges. You can also ask to inspect and take copies of accounts, receipts and other relevant information.

Failure to provide you with this paperwork and information can result in a freeholder being fined.

Resolution

In the event that you do have a grievance, the best way to resolve it is to speak to your landlord directly and settle things in a calm face-to-face meeting. Your case may be stronger if you have more leaseholders on your side, so speak to your fellow residents to see if they share your objections.

If you still can’t find a resolution, you can apply to the First-tier Tribunal Property Chamber to decide if the services you receive are unreasonable.

However, no matter how discontented you may be with your service charged, it is always best to continue paying them until any issue is resolved. A landlord is able to take legal action against those freeholders who withhold funds.