The Hidden Problem With Service Charges

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Most blocks of flats and some housing developments may require owners of individual properties to pay service charges. The idea is that the people living in the community pay towards things like, heating, lighting and the general maintenance of common parts.

The arrangement to pay a service charge is usually set down in the terms of the lease when people buy into a development. Most residents will abide by the terms of the lease and pay their service charge each month and on time.

Only in rare cases are the lease terms broken by someone either refusing or neglecting to pay their service charge but it does happen and this can create a huge headache not only for those managing the building but also other property owners.

Property investors who invest in leasehold flats may be faced with a problem that is not of their own making if one or two residents in a block decide to be consistently late paying their service charge.
This can mean that the management fee increases for example as a result of having to chase late paying leaseholders.

Highlighting the concerns of people working in the property management sector. Matthew Young, Director of Integrity Property Management said, “Budgeting and cash flow are adversely affected by staged payments because many regular costs and contracts have to paid annually or quarterly.

When funds arrive piecemeal, there are occasions when there are insufficient funds to meet these costs, in particular, buildings insurance, it becomes necessary for insurance to be paid on a monthly basis which then incurs interest charges for the management company.”

Neglecting to pay the service charge may just be an oversight on the part of a leaseholder but if it becomes a habit then it can not only be difficult to claim costs from the individual(s). The calculations involved can be complex and one late payer’s debt is often indirectly distributed among the rest of the leaseholders.

The key according to Matthew Young is to ensure that all leaseholders abide by the terms of the lease and pay their service charge one time and in full. This will be more effective when everyone concerned pays monthly in advance of their scheduled payment.

A cosy arrangement among leaseholders to pay each month leaves everyone open to higher service charges and often futile attempts at retrieving service charge debt through court action.

Posted on: March 17, 2015

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Scott Neal

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