Service charges are the lifeblood of blocks of flats and leasehold houses and it is the lease that is the starting point as to when and how the service charge budget is set. It will specify a) whether service charges are recoverable in advance or in arrears of the provision of works or services, b) whether they are to be collected regularly and c) whether they are to be levied as costs arise. The most common provision for collection is where prescribed dates for payment (known as interim service charges) are typically required either twice or four times a year, usually around the ‘quarter days’ of 25th March, 24th June, 29th September, and 25th December.
The way the service charge payments are used are broken down into 3 main areas:
- Day-to-day expenditure such as external lighting, security camera maintenance, drainage cleaning, buildings insurance, salaries and management fees all of which are payable every year and collected according to the terms of the lease;
- Cyclical expenditure such as external redecoration, according to the lease;
- Periodic long-term expenditure which is usually major spending on infrequent problems such as a lift or roof replacement.
There are specific statutory and lease requirements that the landlord/managing agents have to comply with when serving service charge demands such as what information has to be provided alongside those demands and the percentage of service charges payable by the leaseholder, in other words, apportionment.