Does Your Block Have Problems Collecting Payments From Residents?

Louisa Benbow offers some advice on the best way to effectively manage your service charges

The need to keep common areas of residential blocks clean and well maintained is a top priority for most leaseholders and tenants, so it makes perfect sense that leaseholders make their service charge payments in full and on time so that the necessary services can be provided. Unfortunately, this is not always the case and those responsible for collecting the service charge can face a whole catalogue of explanations as to why payments are being withheld. With notable exceptions, in our experience the majority of disputes are unjustified, with the most common reasons given including:

  • Alleged non-receipt of demands;
  • Invoices seemingly being issued to the property as opposed to the correspondence address;
  • Leaseholders believing that services are not carried out; and
  • Residents claiming they are uninformed as to what their payment is contributing to.

There are a number of ways to address these issues and tackle problem payers.

Leaseholders will often claim that they have not received invoices from the managing agent in an attempt to justify their non-payment. Although leaseholders should be aware that their lease outlines the duty to pay their service charge by the specified dates, there is no substitute for regular communication between property managers or managing agents and residents, especially if they are known to be elderly or vulnerable.
While flat owners should be liaising with their managing agent in order to make payments on time if the invoices are not received, more often than not, payments are simply forgotten. Missing payments are not necessarily checked on by leaseholders as the invoices themselves serve as a cue that payment is due. We would always recommend that the managing agent or property manager is seen to be on hand at the blocks they manage, either by way of scheduled visits to the site or regular updates posted on a communal noticeboard or IT platform, showing them to be a constant, accessible presence on site.

Another common reason for non-payment of service charges which is all too familiar to those in the property debt collection business, is that demands have either been issued without being addressed to an RMC director or other named resident, or to an address where the owner no longer resides. In this case, flat owners will be advised that invoices should be requested from the managing agent if they are yet to be received, as the onus is on them to pay their service charge on time.

However, issuing demands to the correct, most recent address on file is imperative in ensuring that payment is received in a timely manner. This will go a long way to reduce any potential legal issues that could arise should it transpire that a managing agent has failed to issue invoices to the address they hold for the owner. As ever, regular communication between leaseholders and their RMC board or property manager encourages regular and consistent dialogue and helps to ensure that all information held is current.

It is noticeable that disputes concerning the services provided by property managers tend to increase once the matter has been passed through to a debt collection agency. Regular interaction with leaseholders can greatly reduce the plethora of maintenance disputes that seem to appear only once a problem has been escalated. By talking to residents on a regular basis and dealing with their concerns at an early stage, disputes can generally be resolved before the parties involved take entrenched positions and start withholding payment.

So good communication really helps when it comes to the effective management of service charge collection. However communication is pointless if it is incomprehensible to a resident. Making all aspects of their service charge obligations accessible to residents by using clear, concise explanations rather than technical jargon and ensuring transparency and integrity in matters concerning accounts is of huge benefit to both parties.

Leaseholders can often be left confused, misinformed and sceptical of the terms and phrasing used in correspondence which is indecipherable to them; user-friendly explanations which clearly outline where leaseholder's money is being spent increases confidence and promotes a sense of reassurance that the property manager is working on their behalf. This is especially important when determining if there has been an over or underspend, resulting in an adjustment on the account. Residents are frequently – and understandably - reluctant to part with more money than they have been invoiced for but this can be remedied by demonstrating transparency in the finances and supplying copies of budgets which explicitly outline expenditure.

Ultimately, service charge management is a collective effort between all the parties involved. After all, maintenance can only be carried out when the funds are available to cover the costs and, in turn, residents are only compliant in contributing their share towards the costs if they have the knowledge and assurance that their money is being spent fairly and appropriately. Actively creating an environment where residents and property managers can be seen to be working together not only makes service charge collection as pain-free as possible but also results in a well maintained block that residents enjoy living in and in which the flats hold their value.

Louisa Benbow is Call Centre Manager at Property Debt Collection Ltd in Hertford

How is My Service Charge Spent?

The service charge is an obligatory contribution from all residents to fund the costs in maintaining the communal parts of a property or development. The requirement for this contribution is stipulated in the lease and can encompass a number of expenses such as general maintenance, including repairs, insurance, lighting and cleaning, to name but a few. Service charge demands are calculated as an anticipated expenditure for the upcoming period. The entry detailing service charges in a lease will specify when and to whom they are payable.

Get Together To Tackle Service Charge Problems

Small blocks are most vulnerable to non-payment, as Bob Smytherman explains.

As chairman of the Federation of Private Resident's Associations (FPRA) and a director of a small self-managed block of flats in Worthing for more than 20 years, Bob Smytherman is only too familiar with the problems that can be caused by non-payment of service charges.

“In a small block, one resident who won't pay their service charge can have a huge impact on the annual budget process and day to day management of a small development as overall turnover is not as high as large blocks,” he explains.

“It also can make relationships between neighbours difficult as the directors have to balance the need for confidentiality about a leaseholder's service charge account and transparency when carrying out works from the service charge. This is particularly difficult when works may need to be delayed or postponed due to lack of cash paid into the account in a timely manner”.

With his FPRA hat on, Bob recommends that leaseholders get together and form a residents association to give them a strong, democratic voice to speak on behalf of their block. “The aim of the FPRA is to make this process easier,” he says. “Members have access to an organisation with more than 40 years of experience providing impartial and independent legal advice to leaseholders.

My own block has been a member for more than 10 years and our directors frequently call on the legal advisors for assistance”.

If you are having problems with service charge collection, Bob's advice is to:

  • Read your lease to establish how you are able to collect unpaid service charges and whether or not the costs of doing so can be recovered from the leaseholder; and
  • Remember not all leases are the same and yours could impact on how you go about