The Alexandre Boyes Tunbridge Wells block management team are often asked the same questions about service charges. This blog pulls together the most common Q&As…
Why do I pay Service Charges? Typically to maintain the structure of the building and its interior / exterior communal areas or where freehold houses are built on private land you will pay to maintain the commonly shared areas and facilities on the estate.
How do I know what to pay? What costs can be recovered via the service charges are usually outlined in your lease and differ from property to property. Your lease usually states what your percentage contribution will be and how often service charge demands should be issued. The annual service charges will be based on a Budget, an estimated forecast of the anticipated expenditure for the year. Factors such as the previous year’s budget and expenditure, any known supplier / service increases, or any known repairs or planned works will help produce the estimated Budget.
What do service charges cover? This differs from property to property. Whilst not a comprehensive list the most common service charges items include: – maintenance and repairs; communal and emergency lighting; cleaning; grounds keeping; window cleaning; health & safety risk assessments and compliance; fire, electrical, plant and mechanical equipment maintenance and testing (e.g. water pumps, lightning conductors, alarms, powered gates, car parks, entry systems, communal heating boilers, communications, CCTV, television, lifts); pest control; waste management; inspections and surveys; utility supplies (e.g. electricity, water, gas); buildings, engineering (lifts) and Directors & Officer insurance policies; and managing agent, professional, accountancy and banking fees. Service charges can also include planned and cyclical works and building a reserve fund to help spread the cost of major works.
How do I know what was spent during the service charge year? You will usually receive an annual statement or accounts outlining income for the service charge year and actual expenditure under the same Budget headings.
Why has my service charges increased? Like homeowners who own their property’s freehold outright leaseholders have not escaped the impact of rising inflation, living costs, energy prices, higher building insurance premiums, increased labour and material costs. In addition leaseholders are paying for extra health and safety requirements introduced by the Building Safety Act. Unlike cladding remediation, the government made no other provision for these costs so they fall to the leaseholders.
What is driving service charge increases? The Property Institute (TPI) recently published a 2024 Service Charge Index identifying inflation, building insurance and building safety as the main drivers. The index highlights: –
Inflation hit 11% in autumn of 2022 and has slowly come down. A longer period of deflation will be needed before the higher costs start to come down.
Construction cost inflation hit a record high of 10.4% May 2022 and was down to 4.1% in 2023
Labour costs are a key 2024 cost driver peaking at 8% in the first quarter with forecasts predicting an increase by 15% over the next five years.
Energy price inflation – gas, electricity, oil and other fuel prices started increasing from summer 2021, spiking when the war in Ukraine began in February 2022. TPI Index suggests utility bills have increased by 73% in the last five years for common parts.
Building safety – there are circa 20 new requirements and actions for all 18+ metre buildings including registration costs with the Health and Safety Executive’s Building Safety Regulator, applying for a Building Assessment Certificate and preparing the required safety case. Fire door inspection costs have been added to all Budgets regardless of building height (read our previous blogs here) and in some cases major fire door remedial works.
TPI Index estimates the average 2024 service charge costs are £3,634 per leaseholder. Andrew Bulmer, CEO of TPI comments “The Property Institute and its members have been concerned about rising service charge bills and the long-term impact on reserve funds for some time. The cumulative impact of a pandemic, an energy price crisis, and the addition of the new regime requirements for building safety, and a cost-of-living crisis in the last couple of years has undoubtedly contributed to soaring costs for labour, materials, utilities, staff and insurance – as is evidenced by our Service Charge Index“
What if I have queries about my service charges? To ensure service charges are reasonable careful consideration is given when preparing Budgets for client approval. No matter how much thought and work goes into these, many leaseholders will have queries or concerns especially if there are service charge increases or pending major works. You should talk to your property manager and bookkeeper especially if you experience financial difficulties which might impact your ability to pay in accordance with your lease. Also, the Alexandre Boyes Tunbridge Wells block management team use Resident Block Management platform to ensure leaseholders have 24/7 access to statements, demands, Budgets and other such information via the leaseholder portal. A log in invite is needed (ask your property manager if you need one) and once you have this, you will find the leaseholder portal is quick and easy to use. You can watch a quick demo here.
As with all Alexandre Boyes blogs, these are intended to be a general overview of topical issues and should not be relied upon for formal purposes. Posted 28/5/2024
