You don’t need us to tell you that a service charge is a fee the leaseholder pays to their landlord once or twice a year for the services the latter is obliged to supply under the terms of the lease. And, depending on the expenses the landlord incurs themselves, the amount the leaseholder pays will vary from one year to the next.
Service charges typically cover the maintenance, repair and occasionally improvement of:
- Window frames
- Guttering
- Foundations
- Buildings insurance
- Communal drains and other communal facilities, including cleaning charges
At the same time, managing agents (and in turn leaseholders) now have a legal obligation to pay to implement the new building safety regime introduced by the 2022 Building Safety Act, produced in the wake of the 2017 Grenfell Tower disaster. The associated costs can vary substantially, and there is no government provision for these expenses to be paid by anyone other than leaseholders.
In social housing in particular, the service charge has become something of a hot political issue in recent months, with some major housing providers hiking yearly fees by thousands, forcing some residents into financial crisis, sometimes with increases of above 40%.
All leaseholders who pay a variable service charge should get a yearly statement from their landlord or appointed managing agent, and receive this no later than six months after the end of the accounting year. This should include a balance sheet plus an income an expenditure account.
All annual statements of account should be seen by an independent accountant prior to issue to leaseholders. The managing agent or landlord cannot keep any surplus or deficit at year-end – this money must be accounted to leaseholders.
It’s true that, earlier this year the King’s Speech announced a new bill, currently making its way through Parliament, to tackle the issues involved. But it only banned leasehold on houses and not flats – yet of the 5.3m leasehold properties currently found across England and Wales, the vast majority (four million) are flats.
TPI’s Service Charge Index
The Property Institute (TPI) recently launched a Service Charge Index, which it will update every year as fresh data comes to light. This reveals that on average service charges have risen 41% since 2019, which compares with cumulative inflation rate of 23% during the same time.
The index looked at more than 13,750 homes across 108 estates, more than half (57) of which are controlled or owned by their residents. Nearly half (46%) or 50 estates comprised blocks which were 18 metres high or taller.
The report found that total service charge bills per estate typically rose by 41% between 2019 and 2024.
It also revealed that key service costs had gone up as follows during the same period:
- Building insurance costs by 92%
- Utilities by 73%
- General health and safety costs by 40%
- Repairs and maintenance by 36%
Meanwhile, there were significant compliance costs for the Building Safety Act, for estates researched which fell within its scope – of which there were nearly 40 (38). These amounted to an average of £177.60 per leaseholder or £28,694 per estate.
CEO of The Property Institute Andrew Bulmer said:
“We and our members have been concerned about rising service charge bills for a while. The cumulative impact of a pandemic, an energy-price crisis, and the addition of the new regime requirements for building safety, plus a cost-of-living crisis has contributed to soaring costs for labour, materials, utilities, staff and insurance – this is evidenced by our Service Charge Index.”
Oakfield says
If the situation seems difficult to you as a managing agent in charge of a block, it certainly doesn’t have to be, despite the challenges such as the sharp rise in the cost of living of recent years. At Oakfield Estate Agents, we take on new buildings all the time, and could quickly help you to make significant savings in a number of key areas.
So we can help you offer the best possible deal to leaseholders, which in turn is good business.
We’re locally based and cover Bexhill-on-Sea, Hastings, Eastbourne, Uckfield, Heathfield and Lewes and around, and with a track record for forging strong working relationships which dates back more than a quarter of a century.
Block management is one of the services we offer, and we work closely with investment landlords, residents’ management and right-to-manage companies in looking after residential blocks and estates across East Sussex. Buildings we manage range from those with two to 70 units – our portfolio comprises more than 900 leasehold properties. What’s more, The Property Institute is one of several professional affiliations we hold.
We understand that times are challenging for many landlords and management companies, as they are for us all. Talk to us today about how we could manage your residential block to maximise cost-effectiveness and efficiency, not to mention safety for residents, with an exceptional service promised at all times.
Browse our website or give us a call to learn more.