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26-07-2021 - - 0 comments
Service Charge Calculations & Collections Explained

When you purchase a leasehold flat, you will be made aware that there will be service charges for you to pay to cover the reasonable costs of maintaining, insuring, and managing the property's retained (communal) areas.

As part of the purchase process, you will have signed and agreed to the various covenants that apply to the property, or 'made legal promises' to pay these charges as and when they are due as per the terms of your lease; you will no doubt be expecting a request for payment of these charges from the properties managing agent at some point.

Even if the building is 'self-managed', you will receive an email stating that you have to pay your contribution towards the property's running costs into a named bank account, say, for example, £100 per month. Alternatively, you receive a formal invoice from the self-managed company or appointed managing agent, stating that you need to pay £100 per month; the dated invoice will be made out to you directly and include your full name, flat & block addresses, plus the bank account details into which to make your payments.

In both instances, you might ask yourself, do I have to pay these charges and is the invoice legally due? Surprisingly, the answer to both questions is NO! Whilst the lease that you have contractually entered into dictates that you must pay service charges, there are various statutory legislation pieces that dictate that service charges MUST be served with certain notices and provide specific statutory information for them to be legally due.

Suppose you, as a self-managed management company, are planning to proceed with legal action against a leaseholder who has not paid. Are you absolutely confident that the charges or 'demands' have been calculated and raised correctly? If there are any errors or failings on the issuer's part, the charges are simply not legally due, and the case will ultimately fail!

In addition, numerous requirements adhere to the lease in terms of apportionment of charges and the dates that the service charges can be invoiced or 'demanded' etc. No lease will simply say 'pay £100 per month' as this is a purely arbitrary figure that bears no relation to an agreed budget or schedule of works.

The service charges need to reflect the annual costs of maintaining and managing the property, plus any specific criteria of the leases, which might include contributions to a 'sinking fund'. Also, an individual's liabilities should be calculated in accordance with the percentage contribution stated in their lease, which might differ from other owners in the same block.

Tales of financial mismanagement within the industry are so common that they are almost regarded as the norm; unscrupulous agents use every trick in the book to extort money from unsuspecting leaseholders bewildered by the apparent spiralling costs of maintaining their building. Typically, these include the extortionate marking-up of third-party supplier invoices, including insurances, utilities and accountancy fees, plus the despicable practice of using disguised 'sister' companies to provide maintenance, cleaning and professional services at vastly inflated costs.

Invariably, most leaseholders are oblivious to these practices, which only serve to inflate the profits of opportunist management companies with no intention of maintaining (let alone improving) a property or protecting the interests of owners or leaseholders. Sadly, the reality is that the perpetrators know that they operate in a non-regulated industry and that the chances of being held to account are minimal. Invariably, the true extent of the profiteering only comes to light when the leaseholders reach the end of their collective tether and seek an alternative and, hopefully, reputable agent.

By way of conclusion, if you find yourself receiving demands for payments of seemingly random amounts which are not supported by either an agreed budget or transparent process, you are at risk of non-compliance and counterclaims from other leaseholders.

Bath Leasehold Management Limited offer a professional block management service underpinned by our membership of ARMA, CMP and PRS, which demonstrates our commitment to compliance, transparency and honesty.

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