We are frequently asked ‘Why am I being charged £50 (inc vat) to pay my service charges by monthly standing order’?
What’s the short answer?
This is a small annual administrative fee for Alexandre Boyes to receive, process and reconcile 12 payments instead of the usual one or two payments a year, and also to administer a payment plan. This is an additional service a little like choosing to spread your car or house insurance payments over 12 months – your premium is increased slightly to cover the extra admin.
What’s the long answer?
Alexandre Boyes collect service charges on behalf of the Landlord / RTM / RMC / or Freeholder. We hold that money in a ring-fenced protected client account to cover expenditure throughout the accounting year for the block / estate managed. Budgets and expenditure are based on having all the funds in advance of an accounting year. We have worked with KDL Law solicitors to look at this closely and here a few factors that come into play: –
- There are often practical and affordability factors that led to monthly standing order requests however paying parties are bound by the terms of their lease / title and the payment obligations and timetables set out therein. Anything else could be in breach of the lease / title and the Landlord has no obligation to divert from strict application of those terms.
- Most lease / title payment terms are usually in advance at the start of an accounting period sometimes biannual. It is unusual that the lease / title provides for monthly instalments. Any deviation needs an agreement that sets out clearly what is due, for what and when, and what happens in the event of default. A payment plan or any other informal arrangement to pay by instalment is temporary – it does not formally vary the lease / title.
- A signed payment plan protects all parties. The paying party from Landlords changing their mind halfway through the year and insisting on full payment when the paying party has budgeted monthly. The Landlord has protection from the paying party later disputing the demanded charges and risking their forfeiture rights.
Why is the payment plan for 12 months only?
Any agreement to spread service charge payments over the course of the accounting year should be reviewed annually. What might suit one financial period may not suit a future financial period. It is important to consider all the financial commitments due each year to ensure there is enough funds at relevant periods in the year to cover all expenses that are to fall due. There may be some years when monthly payments are not practical or reasonable, for instance when there are major works or large increases to insurance premiums. The Landlord may not be able to afford to wait for service charges to be trickle fed into the client account.
Conclusion?
Ideally the paying party will pay their service charges in accordance with their lease rather than instalments. This cuts down on extra admin and ensures that funds are in place at the beginning of the accounting year to pay the projected expenditure and avoids breach of lease or forfeiture issues. Offering to pay by instalment where it is not in accordance with the lease / title is at the Landlords discretion. A signed payment plan agreement protects all parties and Alexandre Boyes cover the additional time spent with the small annual £50 inclusive of vat fee.
As with all our blogs this is intended as a guide only, Posted 19/11/2024
