With the cost-of-living crisis in full effect, you are likely to be scrutinising your service charge demands a little more than usual. Unless your service charge is set at a fixed amount in your lease, the chances are your landlord is allowed to increase your charges. However, increases must be reasonable, and the law allows leaseholders to challenge increases if they are seen to be unreasonable.
The ever-present increases are understandably alarming but understanding why these costs are on the rise may help leaseholders keep the peace with their Managing Agents or RMCs, and avoid lengthy legal arguments around whether or not their increases are reasonable.
Here we’ll discuss the key reasons for service charge increases in 2022.
Insurance
Buildings Insurance will most likely make up the lion’s share of your service charge. It’s necessary in line with the lease and protects you and your fellow leaseholders’ investments should the worst happen, and your block is damaged or destroyed.
Insurance premiums are currently on the rise due to:
- A surge in claims and general demand which has created a ‘hard market’ of insurers who are increasingly risk averse
- the costs of insurers’ reinsurance climbing higher and higher
- building materials and labour costs increasing due to supply chain issues caused by the pandemic, Brexit and the war in Ukraine, which leads to higher Building Declared Values and therefore higher premiums
The increases are being seen across the board, not just for block insurance but that’s little comfort to those receiving higher and higher demands. Just know that this is out of the insurers control, the brokers’ control and certainly your RMC Director’s control (as long as they’re doing their due diligence, shopping around and ensuring your property is valued correctly).
Maintenance and Repairs
Along with the aforementioned supply chain and labour cost issues, many property managers are resorting to increasing excesses to reduce insurance premiums. While this may seem sensible on one hand, it does mean that more of a budget is needed for lower-cost maintenance and repairs (so things can be seen to without making a claim). This can result in a reduction in the insurance category and a hike in the repairs and maintenance category; a difficult balance to strike.
Delaying repairs is an option to reduce costs but this could in turn increase your insurance premiums if ongoing lack of maintenance leads to an incident and a claim or shows your insurer that you’re not taking the necessary steps to protect your block from a claim.
Fuel and Energy
The costs of heating and lighting the common areas of your block will be increasing alongside your personal energy bills. Property Managers will therefore be budgeting with this in mind and so increases in demands will be seen in this area too.
The cost of fuel will also be having a knock-on effect wherever on-site staff are hired who charge for travel. This could include cleaners, gardeners, handy men, electricians, plumbers etc. These costs add up and could well be reflected in the budget.
Scrutinising the necessary vs the ‘bonus’ work that that your contractors carry out could reduce your costs. For example, delaying unnecessary aesthetic works like repainting or reducing the grass cutting schedule could see some savings that add up over the course of the year. Encouraging leaseholders to be aware of energy usage in common areas or fitting automatic lights could see you make some savings there too.
Summary
Essentially, we’re all going to see increases in our necessary outgoings over the next year. Many of the increases will be completely out of your RMC Director’s control, although they should be doing their best to mitigate increases wherever possible.
Working with rather than against your management team is surely the way forward to avoid costly legal battles and to maintain harmony, but always remember you have the right to challenge any service charge demands that are not properly costed, don’t seem reasonable or that you suspect are increasing unduly.
