If you own or rent a flat in the UK, you may already know what a service charge is. However, if you’re a first-time buyer or renter of any property in a communal development, you’ll need to understand what a service charge covers and how it works. Our simple guide takes you through all the essentials so you won’t get caught out.
What is a service charge?
A service charge is a payment that either the property owner or tenant pays for services related to the upkeep of the communal areas attached to their home. Typically, service charges will apply if you live in a block of flats. Or, alternatively, a house within a development that offers its residents additional services, such as a concierge or fitness facilities.
What’s included in a service charge?
Service charge agreements vary widely depending on the property type and location. Generally, they include all cleaning, repair and maintenance works of communal areas like hallways, lobbies, lifts, etc. The upkeep of communal garden areas is another common feature of service charges.
Service charges usually include administrative fees too. These may include insurance on the apartment building that contains the flats. If your development has access to communal leisure facilities – pool, gym, etc. – they will probably also feature in the service charge.
You usually pay service charges to a property management company. They will organise all the required works. However, sometimes landlords will provide these kinds of services themselves.
Who pays the service charge: tenant or landlord?
Either by the tenant or the landlord can pay the service charge. Sometimes landlords will decide to pay the service charge themselves and factor this into the rent to cover the cost. Other landlords prefer to split the costs between themselves and the tenant.
Whatever the arrangement, it should clearly state in your tenancy agreement who is responsible for paying the service charge. It is illegal for landlords to charge tenants for any services not explicitly featured in the tenancy agreement.
Do all flats have a service charge?
Not all flats will feature a service charge in their tenancy agreement. Sometimes you may pay for services as part of your rent.
If you are the owner of a leasehold property, you will have to contribute to the service charge along with all the other leaseholders. However, if you own a freehold property, you may still have a service charge obligation if you share any communal areas with other homes. These might include communal gardens or playgrounds, or unadopted roads.
(Check out our guide on the difference between freehold and leasehold properties for more information on this.)
How is a service charge calculated?
The service charge will be calculated by the property management company providing the services, starting with an estimated budget for the year. They can’t know exactly how much all the services will cost, so they base their estimate on the previous year’s costs. They will also factor in any expected changes in inflation and VAT.
Once they have an estimate for the year, the company (or the property owner) will share it with all leaseholders. They then split it evenly between the leaseholders, who each contribute their share.
If these costs go over the estimate, the company adds them to the next bill. If the costs are less than estimated, the company takes any leftover funds off the next bill.
Is a service charge paid monthly?
You can pay your service charges in advance, either quarterly, bi-annually or annually. Again, your tenancy agreement or any contractual agreement with a property management company should make any payment terms clear.
What is the average service charge in the UK?
Service charge averages vary significantly across the UK depending on where you live and what type of property you have. The HomeOwners’ Alliance puts the London service charge average at between £1,800 to £2,000 per year. Yearly averages for other major cities are closer to £1,500.
The level of services and access to extra facilities will also affect the size of your service charge. Living in an apartment in a small block with no communal garden will attract a more modest service charge. Meanwhile, a large development with concierge, leisure facilities, landscaped gardens and a rooftop terrace, for example, will command a higher charge.
How do you challenge a service charge?
If you are unhappy with the cost of your service charge, you can challenge the property owner or management company directly. They are legally obliged to provide you with two estimates and 30 days’ notice for all major works being carried out. They also have to prove how much all charged services cost through legitimate invoices.
If you want to challenge your service charge, here are some tips to bear in mind:
- Do your homework, and collect all relevant bills, invoices and statements to support your case.
- Consult the other leaseholders. If you all complain together, you’ll make a stronger case.
- Consult your building’s tenants’ association, if you have one.
Is there any way to avoid a service charge?
While you can’t legally avoid paying a legitimate service charge, you can consider taking over the management of the communal areas of the property if you are the leaseholder.
If your building contains two or more flats, and more than 50% of your fellow leaseholders agree, you can set up a ‘right to manage’ (RTM) company. This will allow you to handle all of the works yourselves, without paying a service charge.
Do all leasehold properties pay a service charge?
Service charges aren’t necessarily included with all leasehold properties, but many of them do include one. If you buy a leasehold property, the building itself and/or the land that the building sits within, is owned by the freeholder or landlord. They may include a service charge to contribute towards the maintenance of the building or the upkeep of the grounds.
Can a freehold property have a service charge?
Some freehold properties may include service charge payments. This usually happens only in certain situations. For example, if your property is built on a private estate, you may be required to pay for the upkeep of grounds or other communal areas.
Can you opt out of paying a service charge?
If a service charge is written into the terms of a freehold or a tenancy agreement, you’re legally obliged to pay it. If you’re unsatisfied with the level of provision and maintenance provided, or if you believe the landlord has set the service charge at an unreasonably high level, there are ways to legally challenge it. However, aside from these routes, if you have a service charge in your contract, you should expect to pay it.
What happens if you don’t pay your service charge?
If you can’t or won’t pay your service charge, you can be taken to court by the freeholder to recover the outstanding fees. Ultimately, if you can’t prove wrongdoing on the part of the freeholder or management company, the court action could result in additional fines and you might even lose your home.
This is a rather drastic outcome, however. It’s far better to engage with the management company/freeholder first, if you are unhappy with the service charge.
Do freehold properties have service charges?
While service charges are most common for leasehold properties, you might find some freehold properties have a service charge included in the title deeds. These tend to be a contribution to the maintenance of communal spaces, gardens or playgrounds around new build developments.
Do all new builds come with a service charge?
It has become increasingly common for new build developers to add service charges or ‘estate management fees’ to new build properties, to contribute to the upkeep of the estate. Some developers set these up while new estates are still in development, but the charges might not end even once the estate is complete. The Homeowners Alliance has advice on what to do if you think you’re being charged an unfair estate management fee.
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