Service charges: what are they?

Service charges are sums of money paid by leaseholders to landlords (which, for these purposes, include residents’ management companies and right to manage companies) for services, repairs, maintenance, improvements or the landlord’s costs of management.

They are defined by Section 18 of the Landlord and Tenant Act 1985.

Residential leases contain rafts of obligations on the part of the leaseholder, landlord and any management company. Typically, a lease will impose obligations on a landlord in relation to the building, its common parts and the wider estate in which the building sits including gardens etc. A landlord will have obligations (sometimes referred to as management functions) to look after the building and its common parts including obligations to keep it in repair, to keep it clean and decorated, insured and generally looked after. Leases will allow a landlord to employ staff and professionals to assist them in performing those management functions.

 

How are those services funded?

In order to fund the provision of these kind of services, leases impose obligations on leaseholders to pay service charges.

Most well drafted leases oblige a leaseholder to pay their service charge contribution in advance. For example, some leases will oblige a leaseholder to pay their service charge contribution on 1 January for costs that will be incurred from 1 January onwards. Payment is therefore made being any costs have been incurred. This kind of mechanism ensures that a landlord or management company has sufficient funds to provide the services it is obliged to provide for the year ahead.

 

What’s the impact of non payment?

Non payment and late payment of service charges can have a devastating impact on the successful management of any development. It is a matter of common sense that if there are insufficient funds in the service charge “pot” then a landlord will not have the funds to provide services.

It is in the interests of everyone who owns a flat or has an interest in the development that service charges are paid when they fall due, and that arrears are not allowed to accrue.

After all, if there is a healthy service charge pot, then services can be provided, which makes it a much more pleasant and inviting place to live.