Leasehold properties usually come with several ongoing costs.
One of the most common is a service charge.
Read this blog to learn what it is and how it works.
What is a service charge?
A service charge is a fee paid by someone living in a leasehold property.
It’s stated to potential buyers before a property is bought or rented.
The money ultimately goes to the freeholder (sometimes via the landlord).
What are service charges used for?
Service charges are used to pay for the maintenance of all common areas in buildings or plots of land. This could include:
- Outdoor areas (gardening, minor repairs, painting, etc.)
- Hallways (cleaning, replacing carpets, painting walls, fixing doors, etc.)
- Car parks
- Mail rooms.
And more. Longer term, they may go towards other things such as:
- Major repairs
- Security systems
- Insurance.
Sometimes, major repairs are are covered by a separate sinking fund maintained by the landlord.
Service charges vary
Sometimes, service charges can be several thousands of pounds a year. But other times, it may be less than £1,000.
This often correlates to how well-kept the building is. For instance, a flat in a well-presented building tends to sell for more when the time arrives.
And sometimes, when a major repair is carried out, the service charge rises the following year.
How often do are service charges paid?
It depends. In most cases, you submit this payment once a year.
But there are instances when it can be more regular. This could be twice a year, or even monthly.
You typically pay the service charge in advance of the year ahead.
You’ll then get some money back if less is spent than expected. Or you may need to pay a bit more if the cost increases.
Upfront costs for landlords
Some leases allow the landlord to incur service charge-related cost themselves up-front.
In this case, you won’t submit the payment until after the year is completed when the total is known.
Are there service charges in properties other than flats?
Yes, there are service charges for types of property other than flats.
A service charge is usually seen for any leasehold property. This is typically flats. But it can also apply to terraced houses or semi-detached.
You may even see it with a retirement property.
You should double-check whether the house you’re buying is leasehold or freehold.
If it’s the latter, you won’t pay service charge. But if it’s the former, you often will.
Can service charge be introduced when it didn’t previously exist?
It depends on the terms of the lease. In most cases, this will indicate whether service charge exists.
And if it doesn’t, it may include a clause on when/if it can be brought in.
Generally, a service charge can be introduced if it’s ‘reasonable’.
If your landlord tries to do this, they must show that the amount they’re charging is not extortionate. And they often need evidence of the maintenance work involved.
Is there a maximum service charge amount?
No. There is not technically a limit.
But all freeholders and landlords are only allowed to charge an amount that’s considered ‘reasonable’.
This is a loose definition which can be debated in court.
How much can my service charge be increased?
There is no limit to how much your service charge can increase. Your freeholder must explain why they have raised your service charge.
For instance, the building has expanded considerably due to an extension. Maybe more people are living there now.
Or it’s possible that there’s a significant issue with the roof or foundations.
It’s harder to sell flats with a high service charge. So owners don’t always benefit from raising it.
One alternative to raising it is to start a separate sinking fund to cover unexpected issues.
Can a landlord lie about whether there’s service charge?
No. All details about a property must be accurately conveyed when you buy it.
This is responsibility of the seller, the landlord, and the estate agent. Outright deception is against the law in the UK.
So, if a service charge exists, you must be told about it. This includes the estimated amount it’ll be.
Can I get rid of the service charge on my flat?
Once you sign a lease agreement, you agree to its terms. You can’t force your freeholder to get rid of it.
Dispute it
Although, you may be able to argue the matter in court if you consider the charge ‘unreasonable’. You’ll need a strong case to prove this.
Buy a freehold
There are other ways you could attempt to remove a service charge. The most common is to buy the freehold, so there’s no longer a lease agreement.
You could do this directly by yourself, with a semi-detached or terraced property.
Share of freehold
Or you could buy a share of freehold. This involves teaming up with other people in your building to purchase the land beneath your building collectively.
You can then decide how much service charge you all need to pay. And you’re allowed to set this to zero, if you wish.
