Service Charges
Things I will detail on this page include:
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The freeholder will usually be responsible for dealing with all the maintenance and repairs necessary to comply with the lease.
A management company is often appointed to do this. They will charge a fee which is paid for by the leaseholder along with all the other costs. These costs are known as service charges and will vary from one property to another depending upon the work necessary to comply with the lease. For example some flats will have access to a communal garden which will need maintenance, some flats will have a lift, etc. Older properties will usually require more work than newer ones.
Service charges are sometimes referred to in more than one place in the lease. Typically there will be lessor’s covenants which will include several clauses such as which parts of the building the lessor has to maintain. There is often a section in the lease setting out exactly what is incorporated in service charges. There may also be a section which details how the payments will be made.
The lessor usually insures the property and you will pay for this as part of the service charges. You should make a diary note to check this with the lessor once a year to ensure that it has been renewed.
​Accounts
The usual procedure is for the freeholder or management company to prepare a budget at the beginning of the financial year based on expenditure in the past. At the end of the year accounts should be produced showing the actual expenditure and a correction made with a refund due to the leaseholder or a requirement to pay the excess. In practice this procedure is not always followed as it should be.
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Buying a flat
If you are buying a leasehold property you must inspect service charge records for the last three years to see what has been charged for. The estate agent may have some information, but if not your conveyancer will send them to you during the legal process. It is important that you see these, but remember that there is no guarantee that they will not increase, if for example the roof needs major repairs. Your surveyor may comment on any obvious problems which might cause major expenditure in the future but he or she is unlikely to inspect anything outside the flat itself especially the roof, but often their inspection does not even cover the common parts. Is there, for example, a car park or pathways which may need resurfacing? If there is a lift in the building does it look well maintained and does the freeholder intend to replace it in the near future (lift repairs can be very expensive).
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Your conveyancer will check to make sure there are no areas of service charges, as you will be responsible for any arrears if these are not paid off before you complete on the purchase.
Problems
There are many problems with service charges and most management companies and freeholders do not follow the rules. Many Acts of Parliament have been passed to deal with bad practices but these are often ignored. Leaseholders can take action in the First Tier Property Tribunal (FTT) but this can be stressful, expensive and the outcome unpredictable, and should not be undertaken without legal advice. However the FTT is less formal than a County Court and will be sympathetic to an individual acting without a legal representative. The lease-advice website has a lot of useful information if you are considering taking such action.