Understanding Your Annual Service Charges
Your annual service charges are based on a budget, which is an estimated forecast of anticipated expenditure for the year.
When preparing this budget, your managing agent reviews:
- Previous years’ expenditure
- Any known increases advised by contractors or suppliers
- Planned repairs, maintenance, or installations
Service Charge or Rentcharge?
Service Charge
- What it is: A payment that leaseholders make for the upkeep, maintenance, and management of communal areas or shared services in a building or estate.
- Who pays it: Usually leaseholders (not tenants, unless it’s passed on by the landlord).
Rentcharge
- What it is: A legal obligation to pay a fixed or variable amount to someone who owns the “rentcharge” right over a freehold property. It’s essentially a separate, usually long-standing, burden on the property.
- Who pays it: The freeholder of the land, not a leaseholder per se. It can still affect homeowners if they bought a property on land subject to a rentcharge.
What Do Service Charges Cover?
The specific items covered by your service charge depend on the terms of your lease, and each property will differ.
However, common items may include (this list is not exhaustive):
- General repairs to communal areas
- Communal lighting
- Emergency lighting
- Cleaning services
- Window cleaning
- Gardening and grounds maintenance
- Health & Safety risk assessments and compliance
- Tree maintenance
- Fire safety checks and call-outs
- Electrical inspections and maintenance
- Gate maintenance
- Entry systems and access controls
- CCTV systems
- Lift servicing and maintenance
- Pest control
- Electricity (communal areas)
- Water (communal supply)
- Building insurance and other relevant insurances
- Accountancy fees
- Managing agent’s fees
- Bank charges
- Reserve (sinking) fund contributions
The Purpose of the Service Charge
The service charge ensures that the communal areas and shared services within your building are properly maintained, safe, and compliant with legal requirements. It covers both the day-to-day running costs and the longer-term upkeep of the building’s shared elements.
The Budgeting and Adjustment Process
Many leaseholders/rent charge payers wonder why budgets sometimes differ from actual expenditure and you are not alone in thinking this.
The budget is an estimate prepared at the start of the financial year. At the end of the year, actual costs are compared with the budgeted figures, and a reconciliation is issued.
- If expenditure was less than budgeted, a credit will usually be applied.
- If expenditure was higher than budgeted, a balancing charge may be raised in accordance with your lease.
Your lease should state whether the credit should be given back to you or applied against the next charge. It will also state how long you have to pay the additional invoice if this applies. Often within 14 days.
Reserve Funds
Reserve (or sinking) funds are collected to cover the cost of major works or future large-scale repairs for example, roof replacement, decorations, or lift refurbishment. This helps avoid large one-off demands when significant works are required.
We recommend to all out clients that they should get a building surveyor to prepare a 10-year costed plan to assist with budgeting. Without this, your managing agent can’t be sure about how much to budget (allow for) for the reserve contribution.
Day-to-Day and Major Works
Service charges usually cover routine and planned maintenance. Major works (for example, roof replacement or structural repairs) may be managed separately with an additional cost if the lease says it should be invoiced separately.
A note on Compliance & Legal Obligations
Certain inspections and servicing (such as fire safety checks, electrical testing, and risk assessments) are legal obligations under health and safety and fire regulations. These are included to ensure the building remains compliant and residents remain safe.
“Who Manages What”
The managing agent is responsible for managing the building’s communal areas and ensuring all shared services are maintained.
Leaseholders/Freehold House Owners remain responsible for repairs and maintenance within their own flats, as outlined in the lease.
