Your service charge payments cover your contribution towards the total cost of maintaining and providing services to your estate/block.
Your service charge is a Variable Service Charge under the Landlord and Tenant Act 1985; this means that we estimate what we think it will cost to provide all of the services due at the start of the year, and use this to calculate your contribution for the year. Our estimates will be based on previous costs and information from our contractors, and we’ll outline our estimates to you at the beginning of each year when we tell you your contribution.
The lease and title documents will outline how we calculate the share of the total cost payable by each of the individual units, known as the apportionment – this is usually an equal split or based on the size of individual units. We cannot change the apportionment of the service charge without the agreement of all of those liable to contribute, and your contributions cannot be used to cover non-payment by other residents in the building.
At the end of the year, we’ll reconcile our estimate against the actual expenditure for the development, and issue an annual account statement so that you can see how your service charges have been spent. We’ll also issue a balancing charge with your account statement – if we have spent less than we estimated we’ll credit any surplus back to your account, and if we have spent more we’ll ask you to pay your share of the shortfall.
What does the service charge cover
The lease and transfer documents relating to your home will outline the services which we as the landlord are due to provide, where we have a superior landlord those which our landlord is due to provide as well, and will outline the share of the overall costs that you are due to pay.
Some of the costs that your service charge may include are:
Cleaning, maintaining and repairing the structure of the building and the garden
Servicing and maintenance of fire safety installations such as alarms and automatic vent systems
The buildings insurance premium
A management fee to cover business costs such as dealing with invoices and contractors, and handling normal day-to-day enquiries
A contribution towards a reserve fund / sinking fund for future planned works
How do I find out more about what you’ve spent my service charge money on
As a leaseholder you have a right to ask for more information about how your service charge contributions are spent. We’ll send you a summary of the accounts within 6 months of the end of each service charge year, and if you would like to see further information please contact our Home Ownership Team.
Having your say about how we spend your service charges
We do our best to make sure that you are getting good value for your service charges, but sometimes we will also have to consult with you about how we spend your service charges – where we need to enter into a contract which will cost any one leaseholder more than £100 in a year, or where a single major project will cost any one leaseholder more than £250 (this includes when we are funding the project from your previous reserve fund contributions). This is known as a Section 20 Consultation.
The basic outline of a Section 20 Consultation is below; having a sinking fund would not change the process we have to follow, merely what happens at the end when the bill is due:
- Notice of Intention: we’ll tell you what we are planning to do and why we think it’s necessary; you’ll be invited to make observations regarding our plans, and may also be able to nominate a contractor to tender
- Notice of Proposals/Estimates: we’ll summarise the valid observations made after the Notice of Intention, and outline the results of our tendering exercise; you’ll have another opportunity to make observations regarding those tenders
- Notice of Agreement/Appointment: we’ll summarise the observations made after the Notice of Proposals/Estimates, confirm who has been appointed, and outline any other relevant details about what will happen next
Service Charges from an external managing agent
We sometimes have to collect a service charge on behalf of an external managing agent responsible for managing your block or the wider estate. Where we do, this will be marked as a separate line on your demands as a Third Party MA charge, and anything that we collect under this heading will be passed on to the external managing agent.
If you need to see more information about the services provided by the external managing agent, or have any concerns about the services they are providing, please contact our Home Ownership Team.
What happens if I don’t pay my service charge
Non-payment of your service charge is a breach of your lease, and can affect our ability to provide services due under your lease if there isn’t enough money in your estates’ service charge account to pay for the contractors to do the work. If you cannot afford to pay your service charge you should speak to our welfare and benefits team who can offer you confidential advice and support.
What is the reserve / sinking fund
This is essentially the block’s savings account. As well as estimating the costs for the coming year we’ll consider what major works are required in the medium and long term to maintain the building, such as decorating the common areas or replacing lifts and windows, and we’ll try to estimate what we think it may cost to do these in the future. This will then indicate what contribution we think needs to be made to the fund alongside your service charge contributions to cover future expenditure.
Contributions to the reserve fund are held in trust by us, protected for the benefit of the leaseholders who have paid. We hold the funds in an interest bearing account, and any interest received is also credited to your estate’s sinking fund. You’ll be able to see the balance in your estate’s sinking fund with the final account statement at the end of the year.
We cannot use the reserve fund to supplement a shortfall in day-to-day expenditure.
What is the difference between major works and normal repairs
Major works are the one-off big projects, such as replacing a roof or a lift, or decorating the communal areas, that we have to do periodically over the lifetime of a building (every 10 years for example). All components of the building will have an expected lifespan, and we need to do these to maintain the structural integrity and useability of the building.
Normal repairs, commonly referred to as responsive repairs, are small jobs that we have to do in response to something happening, such as replacing damage to walls and windows or fixing minor roof leaks.
What are the benefits of having a reserve fund
A healthy reserve fund balance will allow us to cover some, if not all, of the cost of major works from contributions already made over previous years – it will mean that we can reduce any demand for contributions by using money that we’ve already set aside for future works first.
Having a reserve fund can also enhance the value and saleability of your flat when compared to a flat that does not have a reserve fund.
I live in a mixed tenure block of leaseholders and residents renting from you – how does a reserve fund work there
Each flat in your block will be liable to pay towards the maintenance costs according to the proportion that is set out in your lease agreement. As a leaseholder you will be liable for the share due from your flat, and if there are flats which are rented directly from us it may be that we are liable to pay that share.
Your share of any costs, including your contribution from the reserve fund, cannot be increased to cover non-payment by another owner or our contribution for any non-leasehold flats.
A worked example:
- You live in a block of 10 flats, each of which is due to pay 10% of the £50,000 cost to replace the roof
- 5 flats are leaseholders, who pay into a reserve fund which now has a balance of £45,000
- 5 flats rent directly from Housing Solutions, so we would be liable for their share
- Each flat in the block would be liable to pay £5,000 towards the cost of the work
- The leaseholders would be covered by the reserve fund contributions they have previously made, so we’d take £25,000 from the reserve fund, leaving a balance of £20,000 for future expenditure
- Housing Solutions would pay the £25,000 share of the cost due from the 5 flats we rent out
Management and Administration Fees
Your service charge will include a management fee payable to Housing Solutions, which will cover the costs of managing day-to-day lease management services under your lease, including paying overheads such as the cost of offices, and recruitment and training.
Where you ask us to provide additional consents or undertake works outside of our normal management services we may need to charge an additional Administration Fee to cover those costs.
You can find a list of our current administration fees on the Administration Fees page of our website.
