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Service Charges

What are Service Charges and why are they so important? 

Service Charges Explained

Service charges represent funds collected to maintain the building’s structure, common areas, and cover the expenses of various provided services. These services encompass repairs, cleaning, elevator maintenance, landscaping, on-site staff, utilities, building insurance, managing agent fees, essentially any service outlined in the lease agreement.

The lease agreement outlines the scope of service charges, their timing, and the accounting procedures. Per legal requirements, these funds are held in trust by the Managing Agent or Landlord for the building’s benefit. With the exception of the management fee, these funds are not the property of the managing agent or landlord and must be maintained separately.

Most lease agreements stipulate that a budget should be created at the start of the service charge year. This budget serves as an estimate for the expected expenses throughout the year. It is typically prepared by the Managing Agent, Residents’ Management Company, or the landlord, depending on the lease terms. The amounts each tenant pays will be a proportion of the total, as specified in the lease agreement.

At the end of the service charge year, detailed accounts should be generated to transparently display how the funds were utilized and whether they exceeded or fell below the initial budget estimate. The lease agreement also outlines the procedures for handling any surplus or deficit.

Remember, it’s essential to refer to your specific lease agreement for precise details regarding service charges and their management. We are here to help you guide through this process. 

Reserve Funds

These funds are systematically accumulated to finance forthcoming property projects anticipated over time, such as exterior renovations or elevator replacements. The collection of these funds occurs gradually across several years, preventing sudden, substantial financial burdens in the year when these projects are executed.

It is imperative to note that all funds designated for future property projects must be securely maintained in a trust account. The details regarding the establishment and utilization of such funds are typically outlined in the lease agreement.

Industry best practices encourage landlords to develop a comprehensive major works plan spanning five or ten years, or even longer for larger-scale developments. This plan serves as a strategic guide for collecting contributions from residents, ensuring financial readiness for significant property enhancements.

picture of an estate from overhead- leasehold properties that would pay service charges

Understanding Leasehold Flat Ownership

When you acquire a leasehold flat, you secure the right to reside there for a specified number of years, known as “the term.” Ground Rent, on the other hand, is a fee charged by the freeholder for the land upon which the building stands.

The precise amount of Ground Rent is detailed within the lease agreement. It can vary widely, ranging from a nominal sum, often referred to as a ‘peppercorn,’ to a more substantial figure.

The lease will also outline the methodology for adjusting Ground Rent during the term, a process commonly referred to as “rent reviews.” These reviews can either specify a fixed amount for the increased rent or establish a mechanism for mutually determining the rate of increase.

The frequency of Ground Rent payments is also stipulated in the lease, with options ranging from annual, semi-annual, to quarterly payments. These payments are typically requested by the Freeholder using a standardised format.

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Our Dedicated Client Finance Team

Our dedicated Client Finance Team takes care of your service charge accounts, but you’re in control. We’ll give you the financial information you need when you need it, be that a report to show actual service change expenditure against a forecast, or a full set of accounts. We can even sort out the mess left behind by previous managing agents and manage a reasonable but robust debt collection process for defaulting lessees.

Taking care of your money is an important responsibility that we take very seriously. Your money is held in a client’s bank account identifiable to you personally and separate from Watsons’ money. Any interest your money earns is credited to your account. 

We’re regularly audited and inspected by the Royal Institute of Chartered Surveyors (RICS) and your money is held in accordance with their regulations. We are also covered by the RICS Client Money Protection Schemes so no matter what happens, your money is safe.

Here For You...

We have experience in managing property for a variety of clients: private freehold investors, national developers, Residential Management Companies and Right to Manage Companies. Our team manage small blocks with simple service charge calculations right through to large developments with complicated multi-schedule service charge apportionment.

Our experienced block managers comply with the Royal Institute of Chartered Surveyors (RICS) Service Charge Residential Management Code.

At the start of each financial year, we prepare a comprehensive estimate of the likely expenditure on your property. At the end of the year, we produce an end of year statement of actual costs, so you know exactly where things stand. Service charges are part of leasehold living. 

Charges collected by Watsons are used to pay for things like insurance and taking care of the communal areas in your property as well as holding reserves for unexpected works that could occur during the year.

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