Service charges are the lifeblood of blocks of flats and leasehold houses and the two main Acts of Parliament that specifically cover the rights of leaseholders regarding their service charges under the terms of their leases are the Landlord and Tenant Act 1985, and the Landlord and Tenant Act 1987.
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.
It will be the lease that 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.
It is important that service charge collection is managed robustly as any failures on the part of the leaseholders to keep to their covenants (promises) to pay will impact on the ability of the freeholders to meet their own covenants to maintain and insure the common areas (all areas that are not owned by individual leaseholders.