What is a fixed service charge?
Fixed service charges are set for the year ahead based on previous years accounts, with a small increase for inflation. These are different to variable service charges, as if the building or estate overspends, they can not request additional money at the end of the year. Fixed service charges do not always reflect the actual cost of the services required, meaning you may be overcharged or undercharged.
What is a variable service charge?
Variable service charges are based on actual or estimated costs of services, and therefore these may change on an annual basis. These charges are outlined at the start of the year, and ensure that property owners pay the true cost of the service. Any surplus or deficit that accumulates will be reflected in your service charge.
What is the service charge structure?
The landlord must provide certain services under the lease and can charge a service charge for doing this. Within your lease will be the dates of the service charge period, which will generally be a year, and then how often payments will be required – this can vary from an annual basis, to every 3-6 months or once the costs have already run up.
Your lease should also state the percentage of the overall service charge that you will have to pay. This will often be based on the square footage of your flat in comparison to the full property, but could also be based on a simple percentage of the overall charge or in relation to the value of your flat in comparison to the building.
Your landlord will state in the lease whether you must make advance payments (either based on the previous year’s costs or an estimate of the following year) or once payments are already made by your landlord. It is generally better for landlords to ask for charges in advance or else the landlord will have to buy all of the service charges out of their own pocket before recovering this from their tenants.
Are there limits on a service charge?
Service charges are open to going up or down depending on the need to cover the cost of the building services, however they have to be reasonable. If they seem overly expensive, then you can apply to the tribunal to challenge your fees.