This article has been written by Trinity Estates.
Service charge is the money a leaseholder or a freeholder of a property, pays towards the day-to-day running costs of your development. Every resident will pay a service charge based on the terms of their lease and the money is used to cover items such as buildings insurance, maintenance, repairs, gardening and communal facilities, as well as the services of your Managing Agent
All funds are paid into a ringfenced client account which is used only for the purpose of the upkeep of your property. Funds are then paid to 3rd party suppliers as and when the services are provided and the managing agent is responsible for managing that fund on behalf of the residents. For that service the agent will charge a management fee. This in the main is the only funds the agent will collect and earn unless others are specified.
What is a service charge budget?
In order for money to be collected to manage your property every service line needs to be reviewed and costs estimated to maintain your development to a standard you would expect.
How do you calculate your budget?
The lease usually dictates how the service charge will be structured. With newly built developments, the service charge and management proposal is usually prepared before the lease is drafted and so it is essential the Managing Agent understands the service requirements fully.
Setting a realistic service charge budget that allows the Property Manager to provide the service the residents require is one of the Managing Agents most important responsibilities. Regular retendering of contracts, and close management of the income and expenditure are essential to successful management.
Is the lowest price best?
Managing Agents are often under pressure to keep costs as low as possible and it is often perceived that the lowest price is the best price. This is simply not the case and in an industry where Managing Agents fees are generally comparable, there are only really three ways to reduce a service charge budget.
- By reducing the provisions for each service, and hence the associated service levels resulting in a reduced service being provided.
- By underestimating a service charge with the intention of charging more at the end of the year.
- Leave out Reserve funds to keep the levels low. This again is not good practice. Reserve funds are designed to build up a fund for the future maintenance of the buildings so there are no surprise larger charges when major things go wrong or break down. These would include a lift replacement fund or roof replacement or just simply the redecoration of the common parts as stated in the lease.
Contact Trinity Estates at www.trinityestates.com.
