At Rocket, we’re often asked about service charges by our landlords.
They may be wondering what exactly they’re paying for, whether there is anything they can do if they feel their service charges are too high or how they might go about challenging what they perceive as unreasonable service charges.
So, we thought we’d take the opportunity to explain service charges and offer some advice, along with a word from our recommended block management partners at Bawtrys Block & Estate Management, but we’ll get to that later…
Service charges are the cost of running communal areas in any block building, whether it’s grass cutting, electricity costs, paying for a concierge or if the building has a swimming pool, gym or other facilities.
The reason that you have to pay service charge as a leaseholder is because a lease is a long term right to occupy, but it comes with terms and conditions.
A large part of those conditions will be outlining the fact that you have to pay service charge, as well as often defining how much you have to pay whether it’s a percentage based on the size of the flat or if it has been apportioned by a surveyor.
While the terms and conditions of the lease may require you to pay the service charges, managing agents must ensure that the costs are reasonable and leaseholders have the ability to question the reasonableness of these charges.
It’s worth mentioning that running a block often costs more than you might anticipate, which means, as a result, your service charge will usually be a bit more than you want to pay.
But, if the block management company need to spend more than £250 per flat for any works to the building that they’re doing then they have to go through a section 20 process, which means alerting the leaseholders of the intended works and providing them with at least two estimates for the works and inviting observations from leaseholders
As a leaseholder, at that point what you should be doing is looking at your lease to make sure the works are something you have to pay for, because if not then you have the ability to send your observation to the block management company, who are required to take into account any observations received.
Leaseholders also have the opportunity to put forward a contractor from whom a quote could be obtained, although there is no obligation for every nominated contractor to be invited to tender.
It’s worth doing a sense check on your service charge and even to take it to your agent, because at Rocket we’re happy to review budgets for our landlords and make sure there is nothing that looks out of the ordinary that they’re paying for.
There are also issues when it comes to block management companies who take commissions from contractors or excessive commissions from insurance brokers that may bump up your costs.
In this situation, the key is to make sure your freeholder is working with a good block management company.
As such, we spoke to Alex Marshall-Clarke from Bawtrys Block & Estate Management, who align with our values at Rocket, to speak about what you should expect from a good block management company, and here’s what he had to say:
At Bawtrys, we specialise in block management and our key values are transparency and communication.
Our clients include freeholders, resident management companies and right to manage companies and we act on their behalf to manage the communal areas for which they are responsible.
This means managing their maintenance obligations in line with their leases and so we prepare annual budgets, collect service charges, instruct contractors, obtain quotes, place maintenance contracts, deal with reactive maintenance, look after the safety of buildings with regard to fire regulations and generally ensure residents are complying with the terms of their lease.
We provide a personal service and leaseholders in our blocks deal directly with us rather than having to speak to someone in a call centre.
At Bawtrys, we follow the RICS code of conduct when it comes to service charges, which states that all service charges must be reasonable.
Now, this doesn’t mean that service charges will always be low, sometimes the market rate for certain services are expensive due to the level of work involved, but we ensure prices are reasonable by obtaining multiple quotes.
If leaseholders are unhappy with any service charge costs, they can initially advise us through our complaints procedure and we hope to get everything resolved amicably and swiftly.
If this is not possible, the leaseholders are welcome to escalate the issue to the first-tier tribunal who will make a determination on whether a cost is reasonable or not.
We rarely have to deal with complaints of unreasonable service charge costs, as we make sure we are transparent and keep an open line of communication in everything we do.
We produce very detailed quarterly financial reports so leaseholders can see every penny being spent and we follow any expenditure limits that have been set.
On the occasion that we do have to spend a larger chunk of money, we will go through a full consultation process with the leaseholders so they can see exactly what’s going on.
And, if any information is requested, then the code we follow requires us to release certain information and everything we do is in line with industry guidance; as such, our clients are always very happy with the level of data we provide in our reports.
Ultimately, we have found that by doing everything by the book, maintaining transparency and keeping an open line of communication, we are able to ensure a harmonious relationship between freeholders and leaseholders, which allows everyone to make a reasonable return on their investment.
