When you move into a flat, it’s crucial that the shared spaces are well-looked after.
It’s unhelpful is doors are broken, or lightbulbs need replacing.
Service charge takes care of most of this.
If you want to find out what is a service charge on a property, keep reading this blog.
What is a service charge on a property?
Service charge is a fee you pay for the maintenance of shared areas in a building. This is typically seen when you buy a leasehold flat.
It’s also common if you’re renting in a flat with plenty of shared areas.
Your freeholder or landlord will use service charge payments to look after communal spaces. Examples of maintenance could include:
- Cutting grass
- Fixing broken appliances
- Replacing furniture
- Repainting walls
- Putting in a new banister
Each freeholder or landlord has a different idea about how much work they should put into maintaining the area. Some will commit to spending thousands every year. But others will do the bare minimum to avoid complaints.
You should be made aware of a service charge before you move into a property. Your estate agent has a responsibility to tell you about this. It will often be on the house brochure, as well.
How much is service charge?
You will find a huge range in service charge prices across the UK. The least expensive examples hover around £500 per year. Meanwhile, the costliest service charges can be £4,000 per year or higher.
According to Hamptons International, the average annual service charge for a flat is £1,431. You find that this number tends to be higher with new build houses and retirement properties. But for a long-standing flat, it can be much lower.
Your location is an important factor, too. In London, service charge has gone up by 10% on average over the past year, to £2,581. But if you live in Edinburgh, anecdotal evidence suggests that the median service charge is roughly £1,200 annually.
Keep in mind that when you are told how much service charge will be, this is an estimated figure. You typically pay this up-front at the start of the year.
You may then have to pay more (or be entitled to some money back) if the estimation is inaccurate. Your freeholder or landlord will usually send you a letter explaining this.
Do all flats have service charge?
Service charges are usually seen with flats. It’s far less common with detached or semi-detached properties.
But not all flats have a service charge fee. If you are renting, you may see some flats where services are included as part of the rent.
Maintenance for shared areas may also fall under a different category if you own a ‘share of freehold’. You and your co-residents may label it as something else. And you can thus have greater control over how this money is spent.
Is service charge the same as a sinking fund?
Not usually. A ‘sinking fund’ refers to money set aside for major repair or renovation projects. Examples could include fixing the foundations, building an extension, or installing solar panels.
By contract, service charge refers to daily maintenance that incurs a smaller cost. Examples include cutting grass, putting in a new carpet, or installing a security system.
You should speak to your estate agent to get clarity on this subject. Sometimes, a portion of your service charge will be allocated to a ‘sinking fund’. Other times, they may be two separate payments. And in some cases, there could be no sinking fund at all.
Can I reduce the cost of service charge?
As a leaseholder or renter, there’s very little you can do to reduce your service charge. You can try to negotiate with the landlord or freeholder about this, but they’re unlikely to be responsive.
Following your wishes will involve reducing the amount of maintenance they do to the property. This comes with its own problems. And they’ll need to enact this reduction for everyone else, too.
You should find out the service charge before you move into a property. If you feel uncomfortable with it, look for somewhere else.
A smaller building tends to cost less to maintain. Especially if it doesn’t have lots of high-tech features or is in a high-income area.
When you’re looking to reduce service charge as a freeholder or landlord, there are ways to do this. You can look for a different management company which charges less. Or you could be more economical with your money-spending.
Can service charge cost change?
Yes. Your landlord or freeholder has a right to increase your service charge. You will typically be informed of this in a letter. The UK law states that these increases must be ‘reasonable’. If you disagree that it is, you can challenge it at a tribunal.
It’s also possible for service charges to go down. Although is only typically seen when a new freeholder or landlord comes in. Perhaps they disagree with the old owner’s methods and want to scale things back.
But otherwise, with inflation causing all costs to constantly go up, service charges are always likely to rise.
Do freeholds ever have service charge?
Not really. When you own the freehold of your property, you don’t have to pay service charge to maintain the house. But you may be forced to pay something called ‘estate charge’.
Estate charge is commonly seen on new housing estates. It could apply to you, even if you own your house freehold. It’s a sum you pay for maintenance of all communal areas on the estate. This could include a park, the roads, or a pathway.
If you’re buying a freehold house on an estate, find out if estate charge applies. You should then get guidance on how much it’ll be.