For many Residents’ Management Companies (RMC), the accounting and service charge processes that need to be followed can be daunting. You can head to our Accounting Practises for RMCs article for more information on how to approach the needs of Companies House. Here we’ll be demystifying the Service Charge Demand process and showing you how easy it can be, especially with the help of Manage Your Block.
What Are Service Charges?
If you’re new to your RMC, you may need a quick reminder of what a service charge demand actually is.
Service charges are paid by all leaseholders within a residential block. This contributes towards the upkeep and management of the building and its common parts.
A typical service charge may cover some or all of the following:
- General repairs, maintenance and cleaning of common areas
- Cleaning of communal windows
- External maintenance such as grass-cutting and gardening
- Redecoration funds
- Lift maintenance and insurance (even if you live on the ground floor)
- Fire equipment maintenance
- Buildings/property owners’ insurance (although this may be paid separately)
- Bank and accountancy charges
Charges will be calculated based on several factors. This includes the size and quality of the building as well as the services provided under the lease.
The Service Charge Demand Process
It’s vital that RMC’s have a clearly defined process to ensure the prompt demand and collection of service charges. Without a consistent influx of contributions, funding can run dry very quickly. This leads to disgruntled leaseholders and a depreciating block.
It’s in a Director’s best interest to exercise a zero-tolerance approach to arrears, but that means ensuring that demands are compliant in the first place and a simple, straightforward procedure is in place:
1. Demands should be supplied in adherence to current standards (which means including a summary of the leaseholder’s rights and obligations as well as displaying the landlord’s name and address). If these standards aren’t met, the leaseholder is under no obligation to pay.
2. If payment is not received on time, a polite reminder should be sent to the leaseholder ASAP.
3. In the continued absence of payment, the leaseholder should be warned of the possibility of legal proceedings and a solicitor should be instructed.
How Manage Your Block Can Help
Free to Residentsline customers and only £99 per annum for non-customers, Manage Your Block is an incredibly affordable solution to some age-old issues. It’s essentially a secure, online hub for storing all relevant information about your block in one place, including:
- Insurance claims history
- Maintenance history
- Inspections and reports
- Risks assessments and reports
- Preferred contractor information
- Contact details for all residents
It can also be used to create reminders and to contact residents, for residents to contact you and to invoice for service charges.
The service charge function carries an additional charge of just £49 per annum and allows you to send professional and compliant demands at the click of a button as well as tracking the payments received and keeping an archive with a full-service charge history for the block.
You can head to our simple instructional video to learn how to utilise the service charge function, but it’s as easy as this:
- Log in, head to the Dashboard tab and click Edit Property
- Complete the Management Company and Service Charge details section
- Complete the bank details section with the account the charges should be paid into
- Upload a personalised email signature and/or letterhead image if you have one for your RMC
- Click Submit and head to the Service Charges tab
- Click Add New Service Charge and select the leaseholders this demand should be sent to
- Enter the term dates, amount and due date
- Preview the emails and the invoices to make sure you’re happy and click Save to send
- The leaseholders will then be listed for you, and you can click ‘Mark Paid’ on each of them as their payments come in before Archiving them to remove them from the list
The system is cloud-based, meaning all the information and functionality can be utilised by anyone, anywhere with a secure login. It’s specifically designed to be simple and user-friendly. We collaborated with a group of directors and committee members during the design process to make sure it ticks the boxes you need ticking… Without being overly complicated.
Late Payment Administration Charges and Interest
During the process of serving service charge demands and reminder letters, RMCs should ensure that any non-payers receive late payment administration charges when appropriate. These charges will go some way to recovering monies for the additional time spent chasing payment.
The legislation merely states that such charges should be ‘reasonable’ but you can look to your lease for guidance. Most leases allow for interest to be charged at a rate of 4% above base rate.
In the Event of a Service Charge Being Challenged…
It’s important to note that the above advice is applicable to late payers. And not leaseholders who actually take issue with a demand.
Leaseholders have the right to challenge any demand that they believe is unreasonable or non-compliant with the lease. If a complaint is received, the leaseholder is entitled to a written summary of costs incurred in the last accounting year (April to April). If there’s not one, the last 12 months leading to the date of their request. This must be provided within 6 months of the end of the last accounting period. Or within one month of the request (whichever is later).
Within 6 months of this being provided, the leaseholder can then go on to request that the accounts and receipts. (And any other supporting documents) be sent to them for inspection.
You must comply with the above time frames to avoid landing yourself in hot water. In most instances, the above is enough to satisfy the needs of the leaseholder so that payment can be made. If not, the matter may go to First-Tier Tribunal. As long as you’ve kept things above board, this should swiftly result in payment being demanded of the leaseholder.
To find out more about Manage Your Block, head to the website, call us or email us at [email protected] today.
