What does 'Service Charge' mean?
Service Charge
Leaseholders (those who live in a leasehold property) are usually required to pay a service charge. This goes to the freeholder or their managing agents and is to pay for the general maintenance of the entire building as well as regular expenses such as cleaning of communal areas.
See Viewing Properties and Making Offers for a full explanation on service charges and the nature of leaseholds.
Search Results for 'service charge' in How to Really Buy a Property
Chapter 8:
Buying to Let / For an Investment
"... to put forward.
Remember also that the yield Calculation does not take into account the costs of Ground Rent and service charges on Leasehold properties. This is often overlooked but a £4,000 annual service charge on the example above reduces its yield by nearly 2%!
When calculating..."
"... Yield and Making a Loss -
Most investors are smart enough, when calculating profit, to take into account expenses such as service charges and the fees of a lettings agent but few consider maintenance. In a flat this might include a replacement boiler every few years.
In houses maintenance is..."
"...In houses maintenance is far more substantial and it is here that the novice investor can make mistakes because houses often appear to have a better yield. On first inspection there is no service charge or ground rent to pay and so the rental profit appears much better. But it is essential to remember that the costs of roof and window repairs or replacements, as two examples, can be substantial.
..."
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Chapter 10:
Working with Estate Agents
"... on your requirements:
Has the owner enjoyed living here?
Are the neighbours nice people?
Does the road get busier than this?
Could the service charge rise?
Will they leave the washing machine, curtains, etc?
Why is the vendor moving?
Would you buy this property?
Will this property..."
"...What does it matter if the neighbours are really lovely people, they could sell up or rent out their places next week. Is it important what the service charge is if you hate the road that the property is on. Is it critical that the washing machine stays if the reception room is going to be far too small for you?
..."
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Chapter 14:
Viewing Properties and Making Offers
"...Paying a service charge: This is usual where the building has been split into flats or has been built as a block of flats. The Freeholder is responsible for maintaining the external structure from repainting the external walls to replacing the roof. It's the dull and boring side of being a freeholder and so he often hires managing agents to do the job for him. Whether or not he does, you will need to contribute towards these costs. He is responsible for doing them but you are responsible for providing the funds. The exact ins and outs of how this works, what he is responsible for, what percentage you must contribute and a whole lot more are laid out in the lease.
..."
"...Paying a service charge: It is up to the partners in a share of freehold how they pay for the maintenance of the building. There is no right or wrong way but if the freehold company has no savings it would be wise for you to set up your own separate private account just in case the roof decides it has seen better days! The most popular methods for financing a Share of Freehold property are:
..."
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Chapter 17:
The Property Buying Process in Theory
"...service charge Accounts (Leasehold Only) - where you are buying a leasehold property it is important to gain an idea of how much the managing agents charge every year to maintain and run the property. These charges could include lift maintenance, cleaning, lighting, care of a communal garden, even looking after the TV aerial and satellite dish. The most important factor is that these charges are consistent and reasonable with what is being provided. As such your solicitor will ask for at least the last three years accounts to confirm this or spot any trends that you should be aware of. Any debts that the vendor may have with the managing agents are identified here and are extremely important. service charge debts are based on the property. If you buy when there are outstanding debts they will become your responsibility.
..."
"...Ground Rent Receipts (Leasehold Only) - the ground rent is a charge made by the freeholder. Again the last three years receipts will be sought by your solicitor in order to make sure the premiums are not excessive or rising sharply. Any debts that the vendor may have with the freeholder are identified here and are also extremely important. As with the service charge, ground rent debts are also based on the property. If you buy when there are outstanding debts they will become your responsibility.
..."
"... be familiar with when this actually occurred in the area and so asks for documents that do not exist
Leasehold only: The managing agents are extremely slow to provide service charge accounts
Leasehold only: The managing agents have been changed within the last three years and the previous..."
"... years and the previous agents are refusing to pass on any documentation.
Leasehold only: Your solicitor believes the service charge accounts are not adequate but the managing agent refuses to provide any further information
Leasehold only: The vendor owes the managing agents money but is..."
"... (Leasehold and Share of Freehold only): From the freeholder or freehold company.
service charge Accounts (Leasehold only): From the managing agents or from the freeholder if he has not appointed managing agents.
Ground Rent Receipts (Leasehold only): From the freeholder.
License to Assign..."
"... be familiar with when this actually occurred in the area and so asks for documents that do not exist
Leasehold only: The managing agents are extremely slow to provide service charge accounts
Leasehold only: The managing agents have been changed within the last three years and the previous..."
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Chapter 21:
Legal Matters in Property Purchases
"... for the property?
Management Agent Enquiries
If it is a leasehold property are the service charges and ground rents of the level you were lead to believe by the agent and have they all been paid by the current owner?
That really is about it and that is why it is possible..."
"... a transaction actually comes from them writing letters to each other which often go something like this:
Solicitor A is concerned about why the service charge was so high two years ago
Solicitor A asks his PA to write a letter to this affect
Next day Solicitor A's PA writes the letter and..."
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Chapter 22:
Why Vendors are Poorly Prepared
"... roof, etc.)
The building insurance details
The local search (If the HIP is still valid)
If the property is leasehold
The last three years service charge accounts
The last three years ground rent receipts
Any deeds of variation
Optional but a big bonus are:
Past or recent..."
"... quotes to ensure something you relied on in your offer, say the damp proofing, is not going to become an unaffordable expense.
- service charge and Ground Rent -
Managing agents come in all shapes and sizes from large companies to individuals who buy up freeholds. They can be helpful or..."
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