Service Charges, Ground Rent, Administration Charges
Table of Contents
Summary
- Service Charges are costs defined by the lease which are to be shared between all leaseholders.
- Examples: cleaning, maintenance, lighting of common areas, repairs, drainage, decorating, fire safety risk assessment, inspection and maintenance of fire alarms and other equipment.
- Buildings insurance is required. The cost of this is added to the service charge.
- Where there is a shared heating and hot water system for all flats (rather than every flat having its own boiler) the costs of the gas and electricity used for this is recovered via the service charge.
- Major Works: Any works costing more than £250 per leaseholder requires a s.20 notice under Landlord And Tenant Act 1985
- Ground Rent: Payable to the freeholder (whoever owns the land and the freehold title).
- This is generally collected by the managing agent on behalf of the freeholder.
- Tends to increase over the course of a lease.(for example every 10 years in line with RPI.
- A fee for absolutely nothing. Freeholds are often owned by large and wealthy investment groups who own the freehold largely to collect the ground rent income. They provide nothing in return for the ground rent.
- Ground rent has been abolished for new leases. Existing leaseholders still have to pay it. It remains to be seen if ground rent will be abolished for existing leases.
- Administration Charge: Fee payable by an individual leaseholder. Includes:
- Sales pack prepared for the buyer of a flat when selling.
- Debt recovery and legal fees for non-payment of service charges.
- Legal fees for dealing with a leaseholder's breach (or alleged breach) of the lease.
- Providing information to anyone other than the leaseholder at their request.
Reasonable
- The law states that service charges and administration charges must be 'reasonable', though the process of determining what is reasonable is generally a matter for the court.
- It's worth comparing service charges of similar properties in the area or asking local estate agents if they think the service charge is reasonable.
- If you dispute the charges or ground rent, the general advice is to pay first, challenge later as non-payment usually means further fees being added (late payment, debt recovery and legal fees). (i.e., what started as a dispute over £350 can escalate to £1000 if you withhold the charges.)
- If you have a mortgage, an application can be made to your lender to pay the outstanding amount and add it to the mortgage. (For which the lender will usually charge a fee, of course.)
- If the charges are still unpaid, proceedings to forfeit the lease and take possession of the flat can be started.
- It can be difficult to challenge charges which you have previously accepted and agreed to pay. (you need to make it known at the time of payment that you dispute the charges.)
- Always seek legal advice from a specialist leasehold solicitor and/or The Leasehold Advisory Service
In general, the service charge at Benedicts Wharf has been in line with similar developments in the area. The shared heating and hot water system means an increase in service charges with the current high energy costs faced by every household in the UK right now.
Where flats are rented out, it can be hard for the leaseholder to pass on this increased energy cost to their tenant via their rent, instead of the tenant paying only for what they use directly to the utility company.
If there was a boiler in the flat itself, the leaseholder would have to pay for annual safety checks and maintenance. With the shared heating and hot water, the cost of maintaining the system is paid via the service charge instead.