Receiving a higher service charge demand is rarely welcome for leaseholders particularly when household budgets remain under pressure. However for many leaseholders, these increases are a reflection of rising costs across the property management sector rather than unnecessary spending.
Where your lease provides for a variable service charge your landlord or management company can recover the reasonable costs of managing and maintaining the building.
Importantly under the Landlord and Tenant Act 1985 service charges must be reasonable and leaseholders have the right to challenge charges they believe are excessive or have not been incurred correctly.
Understanding what is driving these increases can help leaseholders appreciate where their money is being spent and encourage constructive dialogue with Managing Agents or Resident Management Companies (RMCs).
Buildings insurance is typically one of the largest elements of a service charge budget. It protects the building and all leaseholders’ interests should significant damage occur.
Insurance premiums have increased substantially in recent years due to several factors including:
Managing Agents and RMC Directors have a duty to obtain suitable cover at a competitive price but they cannot control the wider insurance market.
Responsible agents will regularly review policies, obtain competitive quotations where appropriate and ensure rebuilding valuations remain accurate.
The cost of maintaining residential buildings has risen significantly. Contractors continue to face higher wages increased material costs and longer lead times for many building products. Also generally within the insurance industry there have been significant pay outs in multi-occupancy buildings for insurers due to issues such as, escape of water claims from modern plastic plumbing fittings.
Routine maintenance remains essential to protect the building and avoid larger more expensive repairs in the future. Delaying necessary works may appear to reduce costs in the short term but can ultimately result in:
A well planned maintenance programme is generally the most cost effective approach over the long term.
Although wholesale energy prices have become more stable than during the energy crisis electricity costs remain significantly higher than historic levels.
Communal lighting, lifts, ventilation systems, electric gates and shared heating systems all contribute to service charge expenditure.
Many management companies are now introducing energy saving measures such as:
These improvements can help reduce ongoing costs while maintaining the quality and safety of the building.
Almost every contractor involved in managing residential developments has experienced higher operating costs.
Travel costs, wages, training requirements and regulatory compliance have all increased which is reflected in contractor pricing.
Where possible Managing Agents should regularly review supplier performance and seek competitive quotations to ensure leaseholders continue to receive value for money.
One of the biggest changes affecting service charge budgets over recent years has been the increased focus on building safety.
Following changes to UK legislation many developments now require additional inspections, maintenance and compliance measures. Depending on the building, these may include:
These are legal obligations designed to protect residents and cannot usually be avoided.
Many developments collect contributions towards a reserve or sinking fund to help pay for major future works such as roof replacements external decoration or lift refurbishment.
While contributions to these funds can increase annual service charges they often help prevent leaseholders from receiving substantial one off demands when significant works become necessary.
Good financial planning benefits everyone in the building over the long term.
Leaseholders are entitled to understand how their service charge has been calculated.
Under UK legislation service charges must be:
If you have concerns about your service charge the first step should always be to raise them with your Managing Agent or RMC. Most questions can be resolved through open communication.
Where concerns remain leaseholders have legal rights to request further information and if necessary challenge unreasonable charges through the appropriate legal process.
No one welcomes increasing costs but many of the factors affecting service charges are driven by wider economic conditions changing legislation and the genuine cost of maintaining safe compliant and well managed buildings.
At Horizon Management we believe transparency is essential. We work closely with Resident Management Companies, Right To Manage Companies, Freeholders and leaseholders to ensure service charge budgets are carefully prepared competitively procured and fully aligned with the terms of each lease. Horizon are always keen to ensure Explanatory Notes accompany service charge budgets to inform leaseholders of where the costs arise and to what extent the services are costed.
Understanding where your service charge is spent helps build trust and ensures everyone is working towards the same goal: protecting your property, maintaining high standards and safeguarding your investment for the future.
Click here to contact one of our friendly team who will be happy to help
