Service Charges Explained

Buying a new home can often feel like a long and drawn out process. Whether you’re taking your first step on to the housing ladder, or looking to invest in a buy-to-let fixer upper, putting pen to paper on your new property is often more of a marathon than a sprint.

The list of things to consider might feel endless – but it’s important to be aware of all the little details, many of which will crop up again once the dust has settled. Service charges, which are used to maintain and manage the communal parts of a building, are one thing which often fall through the cracks during conveyancing, and which can cause a surprise later down the line.

Particularly when moving into a flat or any home where areas of the property are shared, it’s easy to dismiss what happens beyond your own front door. However, communal areas – from gardens and car parks to corridors and play areas – are often just as important as individual homes. These have a direct impact on the value of your property and for residents can improve the quality of life in a building. Similarly, for people renting their property out they provide a unique selling point in a competitive market. The service charge helps to keep these facilities up to scratch so that residents don’t have to worry about maintenance and upkeep.

A mortgage concept with a calculator

It’s important to know exactly how much your service charge costs, when it is due and what it covers. For a detailed breakdown of how FirstPort calculates charges at the developments we manage, you can see more information on our website. But as a starting point, here is a summary of what to look out for.

What is a service charge?

Service charges are used to keep the shared areas of the building clean, safe, and in good repair. Every resident pays into a shared fund, and the cost will be calculated based on the type of development you live in, its size, and the amenities it has.

In return you get the peace of mind of knowing the day-to-day upkeep is looked after, the big jobs are done properly and safely, and that when something goes wrong the funds are there to sort it out.

As property managers, we collect service charges from flat-owners on behalf of a building’s owner or a resident management committee. Different management companies may take slightly different approaches, but responsible operators will make sure your service charge money is kept safe in a separate bank account. We also see to it that, at the end of the year, you receive a full review of what has been spent and where.

A businessman working at his desk

How is it worked out?

It’s impossible to budget for every unforeseen event but generally speaking your service charge will be based on an estimate calculated at the start of each year, specific to your building. This will be worked out by your property manager and should be calculated to cover all the work that is expected to be needed that year.

The budget will then be split between you and your neighbours, under the terms defined in your lease. This could be an equal share, or weighted based on the size of individual properties. This should mean there is no quibbling over costs, and avoids the stress of having to find the right contractors or suppliers. A responsible property manager should be able to do all of that for you.

Good property managers will also plan for the long term as well as the year ahead. Those with experience will know the importance of building up reserve funds over time to make sure there is always money in the bank. This means that when it’s time to take on a big job – like replacing the lift – the reserves can be used so that residents don’t have to foot the bill all in one go.

What else do you need to know?

This should all sound straightforward – but service charges do come as a shock to some, particularly when they’re not properly communicated. All the information you need should be given to you by your estate agent or conveyancer during the buying process. If you’re at all unsure, then ask for more detail.

A checklist and a pen

It’s no secret that service charges have been a cause of controversy in the past, and in some instances they have been mishandled. However, by being informed and knowing the right questions to ask you can protect yourself from any surprises – and be well-equipped to query how funds are being spent if you’re worried.

As the largest operator in our market, we have the knowledge and size to make sure service charges are managed professionally – but not all operators are at the same standard. When buying a property, you should ask your property manager about all the core details of the service charge – including how much they cost, when they’re collected, and how spending will be documented.

When everything adds up, service charges are a great way to make sure your property is properly looked after and that there is enough in the bank leftover for a rainy day. They allow you to concentrate on the most important thing: the home you just bought. As a property manager, it’s our job to make sure that happens.

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