As agents we find that service charges can be one of the more confusing aspects of being a flat owner. Too often when a leaseholder property is sold, the purchaser ca be left unaware of all aspects relating to service charge which can then cause disputes.
The lease sets out your service charge and what can be charged, when it is due and what costs can be included. The lease will also determine whether you must make advance payments based on previous financial expenditure or the estimated costs for the new year.
When the actual costs are confirmed at the year end, leaseholders will receive a certified service charge certificate which details income against expenditure.
Service charge will go up or down in each financial year dependant on the need and services required for the building and any associated estate areas. The Landlord & Tenant Act 1985 as amended states that services charge is recoverable by a landlord so far as the costs have been reasonably incurred.
The lease may allow for the collection of a reserve fund or sinking fund. The purpose of this fund is to cover the cost of major works outside the day to day management of the service charge budget, such works may include cyclical projects such as external redecoration, lift replacement etc.
It is good practice to have a planned preventative maintenance strategy (PPMS)capital expenditure report completed on the buildings which details the longevity and lifespan of each item of expenditure, I.e a lift has an average lifespan of 25 years, a roof may have 50 years all of which need to be accounted for.