If you don’t pay your service charges
If the leases in a block do not provide for advance payments, that can present a real difficulty for everyone involved. In theory, the landlord has to buy all the services before they can recover their costs from the leaseholders. It is better for the landlord if they can ask for service charges before they have to pay for work and services. The amount leaseholders pay would then be based on an estimate of the costs.
Your lease will usually set out the percentage or proportion of the service charge that you must pay. For example, you may have to pay a share of the charge based on the square footage of the flat as a proportion of the whole building. Or, your share of the charge may be based on a simple percentage of the total service charge or, in older leases, it may be based on the rateable value of the flat as a proportion of the rateable value of the whole building.
Services you can be charged for
By law, if several leaseholders must contribute to the same costs under the terms of their leases, the money they pay must be held in trust and ideally in one or more accounts. Originally, the costs of services were included in rent payments, but as costs and inflation increased, landlords wanted to make sure they recovered all their costs every year. Some old leases still allow a fixed charge to be charged, regardless of the actual costs to the landlord. However, most service charges are based on the actual or estimated cost of the services, and so may well change from year to year.
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Online rental platforms that link renters to property owners such as Airbnb have service charges to cover the payment fees associated with the reservation. The service charge is usually calculated as a percentage of the subtotal and applies to renters and owners. The amount you pay for service charges can vary from year to year, depending on the actual cost of the services to your landlord. You should always treat your service charge as a priority debt as not paying it can have serious consequences. You can challenge charges made under a scheme in a similar way to service charges.
Is a service charge the same as a tip?
Tips must also be given freely (without coercion) and the customer giving the tip must be able to determine who receives the payment. Service charges, on the other hand, are any extra fees or predetermined charges added to a customer’s bill.
Service charges are payable by the leaseholder to the landlord for the services provided, as determined by the lease. Service charges normally include costs for maintenance, repair and insurance of the building and communal areas (often including roofs, foundations, window frames, pipes and drains) plus the employment of staff and management of the property. The general principle is that the landlord decides how to spend the service charges, which is the leaseholders’ money. This applies in all situations where flats are managed centrally and still applies if the leaseholders themselves manage their building (for example, where there is a residents’ management company). However, the law protects people who pay service charges and sets the following responsibilities which the landlord must meet.
Tips vs. service charges: Understanding the differences
What are service charges for?
What are service charges? Service charges allow a freeholder to recover the costs of providing services such as maintenance under the lease. Service charges usually cover things like: repairs, maintenance and improvements to communal areas or the building structure. building insurance.
- If the leases in a block do not provide for advance payments, that can present a real difficulty for everyone involved.
Where the landlord has over estimated, the lease will determine whether the over payment is to be refunded, held as a credit for the following year or transferred to the reserve fund. Details of what is included to be paid with the service charges is set out in the lease and all contributions will be met by the leaseholders.
The request must be in writing and can be sent directly to the landlord or to the managing agent. It can ask for a summary of the relevant costs relating to the service charges for the last accounting year or, if accounts are not kept by accounting years, the past 12 months. The Landlord and Tenant Act 1985 sets out the basic rules for service charges. You and your landlord can apply to the tribunal for a decision on whether a service charge is reasonable, regardless of whether or not you have already paid the charge.
Sometimes the lease just states that each leaseholder must pay a ‘fair’ or ‘just’ proportion of the service charge. If different groups of tenants benefit from different services, there may be different service charges for the different groups. Landlords charge service charges to recover their costs in providing services to a building. The way in which your service charge is organised (for example, what it covers and how it is worked out) is set out in your lease or tenancy agreement. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, porters, and lighting and cleaning shared areas and so on.
You can apply to the tribunal to vary the scheme itself on the grounds that a charge made under the scheme is unreasonable or that any formula used to calculate the charge is unreasonable. You and the landlord can also apply to the tribunal for a decision as to whether or not a charge should be paid and, if so, how much the charge should be, who should pay it and who they should pay it to, and how it can be paid.
Your application can relate to costs your landlord has already paid for work, services or other charges, or can relate to an estimate or budget. However, if you have agreed or admitted responsibility for paying the charges, or the charges have been finally decided by a court or tribunal, or by arbitration following a dispute, you and your landlord cannot apply to a tribunal.
The charges may also include the costs of management by us the managing agent and for contributions to a reserve fund or sinking fund – see ‘what is a reserve or sinking fund? If you fail to pay service charges, ground rent or administration charges which are due, you could face action from your landlord.
By law, your landlord has the right to take this action, but they cannot take back possession of your home without a court order. They must generally start the process of action to take back possession of your home by serving a valid notice of seeking possession under section 146 of the Law of Property Act 1925 (a section 146 notice). A tenants’ association is a group of tenants (normally leaseholders) who hold houses or flats on leases/tenancies from the same landlord on similar terms, which contain provisions for the payment of service charges etc. Leaseholders, or the secretary of a recognised tenants’ association, have a legal right to ask the landlord for a summary of the service charge account.
Usually, your lease will allow your landlord to arrange the insurance of the building (not the contents) and charge you the cost of this as a service charge. This is the normal arrangement for buildings that are divided into flats because it is important that there is one policy which covers all risks to the whole building. The cost of the insurance is normally included as part of the service charges, so it can be challenged at, or confirmed by, the tribunal in the usual way. 18 months of when they become liable to pay for the works undertaken or the services provided, which may be either by the presentation of an undisputed invoice from the contractor or supplier or actual payment of the invoice.
Service charges can go up or down without any limit, but the landlord can only recover costs which are reasonable. You have the right to apply to the tribunal to challenge any service charges that you feel are unreasonable. The lease will usually give the dates of the service charge period and how often the payments are due. The service charge period is often a year, but payments may be due every six months or every three months, or in some cases may be charged after the costs have been run up.
The landlord arranges for the services to be provided and the leaseholder pays for them. A service charge is a payment made by a tenant or a homeowner towards the cost of services and repairs beyond those specifically for their house or flat. For example, if you live in a block of flats with a communal garden, the cost of maintaining that garden is covered by a service charge because it is available to all residents as a communal service and it is outside of their flats. Other services it can include are general maintenance and repairs, electricity, cleaning of communal areas. Service charges are usually payable in advance and at the frequency stated within your lease – typically this will be annually, bi-annually or quarterly.
The charges may also include the costs of management services provided by the landlord or by a professional managing agent, and contributions to a reserve fund. The advice provided applies to you if your lease means you must pay a service charge which changes in accordance with the costs of works undertaken and services provided, or if the landlord asks you to pay administration charges. It also applies if you have to pay charges to an estate management scheme. Most leaseholders pay their freeholder landlord service charges to cover maintenance and shared costs.