Home News A Tenant’s Guide to Service Charge

A Tenant’s Guide to Service Charge

A Tenant’s Guide to Service Charge

3 minute read

If you are purchasing a flat on a long lease, there are plenty of elements that you must know about before signing the contract. Whilst the rent you pay under the lease (known as ground rent) is likely to be minimal or even nothing (known as peppercorn rent), there’s something else to be aware of which is the service charge.

What is the service charge and who is responsible for it? At BPS, we’ve worked with lots of landlords, leasees and management companies over the years, allowing us to understand the nuances better than others. We’ve created this short guide to service charge for residential long leasehold properties which we hope to be of use to you.

What is the Service Charge & What Should a Service Charge Include?

In a nutshell, service charge is the cost of maintaining, repairing and renewing those parts of the building which are common to all of the leaseholders. Examples of internal parts are communal entrances, corridors and lifts. Examples of external common parts are roofs, gutters and gardens.

Who Pays Service Charge – Landlord or Tenant?

The lease dictates the extent to which service charges apply to a property. Sometimes, the percentage payable by a tenant is stated, however the lease will usually refer to either a proportion based on rateable value or a fair proportion to be determined by the landlord’s surveyor. Where this is the case, the percentage will usually be calculated based on a percentage of overall square feet/metres.

Where there is no provision in a lease for service charge in a particular lease (this is extremely rare and usually occurs as a mistake in drafting), the freeholder has retained one or more of the flats, or there is an empty flat with no lease on it, the freeholder pays the contribution. So, effectively, this service charge can be paid by both the tenant and the landlord.

As a landlord, it is essential to know that it is illegal for a landlord to charge a tenant service charges that haven’t been written into the tenancy agreement. If you are a tenant, be sure you see a clear statement of any service charges you’re paying.

Another factor into service charges: Managing Agent Fees

Historically, managing agents charged a fee for managing the service charge based on the expenditure over the service charge year. However, unless the lease specifically states that this is how the fee should be charged, managing who are members of any of the recognised professional bodies are required to charge a fixed fee per flat.

This is a much fairer method and is intended to discourage unscrupulous agents from sending more money than is necessary in order to increase their fees.

Legislation & Codes of Practice

There is an increasing amount of legislation governing how managing agents should manage a service charge. What is key for an agent to bear in mind in their management of a property is that they are not spending their own money. Where there is a provision for service charge on account, the money held by agents is legally on trust for and on behalf of the lessees and consideration should be given to this.

The current code of practice is in its third edition, but The Royal Institution of Chartered Surveyors (RICS) are working on the fourth. As Chartered Surveyors, we are bound by the rules and regulations of the RICS – this offers lessees an extra layer of protection. You can find the current code of conduct here.

Having a property management firm will ensure that the property is cared for and compliant with the ever-increasing legislation such as health and safety, asbestos, fire regulations and much more. An agent takes the responsibility and stress off the shoulders of the landlord or management company.

Residential & Commercial Property Service Charge

To summarise, service charges are there to cover the cost of communal property maintenance or administrative work that is required. Lessees have a right to explicitly know what these charges are and how much they might need to pay. Working with a property management company will help landlords, lessees and management companies handle these charges as best as possible.

At BPS, we always make sure the service charge is calculated, distributed and paid. We are on hand to provide support and guidance in any aspect of the building and what we do guarantee is full transparency and, equally, availability.

For more information or to discuss your requirements, please feel free to contact us today to talk to one of our experts.

We look forward to being of assistance.