Understanding Your Service Charge

This is the annual estimate of costs property owners pay to the landlord (usually via a managing agent) to cover their share of maintaining and managing the building or development, including communal areas. The lease (or in the cases of houses - the deed/transfer) outlines how it is structured and what is charged. 

Collecting a service charge ensures the landlord/managing agent can pay for services needed to keep your development safe, clean, comfortable, and well-maintained. 

Service charges are used to cover the annual cost maintenance and management. These might include, but are not limited to: 

• Buildings Insurance  

• Utilities (such as electricity or gas) 

• Cleaning  

• Landscaping 

• General Maintenance  

• Mechanical and Electrical Maintenance  

• Amenity Management and Maintenance  

• Reserve Funds 

• Legal and Professional Fees, including the Management Fee 

For a full and accurate breakdown of your service charge, please refer to your service charge budget and or service charge year end accounts.  

POD prepare and agree the annual budget for client approval (the party instructing us to manage the development) prior to the start of each service charge year.  

It’s important to remember that the budget is only an estimate of costs to be incurred and in preparing it, the anticipated costs associated with the maintenance and management of the building/ development are grouped under various cost headings and sometimes, under separate ‘schedules’ (a way of ensuring only those who benefit from costs pay toward them).  

While all costs should be accurate and reasonable, the nature of property management means that not all costs will be known and we must make an estimate of likely costs, which may or may not be spent. 

The payment schedule varies depending on the development. Invoices are issued on behalf of the client in accordance with the frequency set out in the lease, deed, or transfer and may be due annually, half-yearly, or quarterly. 

The specific date by which payment should be made will be specified in the lease and shown on your invoice. However, there can be circumstances when invoices are issued later than anticipated and, in those cases, the due date can be amended to allow sufficient time to make payment (usually 30 days after the invoice has been issued). 

The management fee is a specific cost forming part of the service charge that is paid directly to the managing agent to cover their costs in managing the property, as laid out in the lease (or deed/transfer document).  

At POD, the management fee is a fixed amount agreed upon annually. 

A reserve fund is used to separate and accumulate monies that might be used toward future major renewal or replacement projects, should they be needed.  

While the goal is to cover future works, there may be times when the fund is insufficient to cover all necessary work within a given period. In such cases, the lease may allow for an additional collection from property owners. 

Throughout the year, service charge funds are used to pay for planned and reactive maintenance and at the financial year-end, income and expenditure are reviewed, and the service charge year-end accounts are produced. 

If expenditure exceeds the budget, a deficit charge will be raised, requiring property owners to pay a ‘balancing charge.’ If the expenditure is under budget, any surplus will be credited to either the property owners’ service charge account or the reserve fund (depending on what the lease/transfer/deeds states).

The costs associated with maintenance and management are subject to change. The age and condition of the building/development, level of services provided, cost of maintenance/utilities and changes to legislation resulting in additional works can all lead to increased costs.  

While any increase is undesirable, the landlord or managing agent must make sure the service charge estimate is reasonable and covers known costs (by looking at what the actual expenditure in the preceding year) alongside future anticipated costs.