The popular service charge budget can be more confusing than you think. It’s often the main piece of information that a tenant receives regarding the service charge from the landlord, and therefore understandably taken at face value. As it says on the tin, this is just a budget and not the final costs.
This is probably best explained with a common example of your own monthly finances towards, say, eating and food.
So, if you’re going through your finances and budgeting for what you can spend every month, you might put £400 aside for this, and then break it down to perhaps £200 a month on your regular weekly main-supermarket shop, and then £120 a month for the smaller bits and bobs you tend to buy in the week from your local convenience store and lunch-time sandwiches here and there, and then have a final £80 towards takeaways and eating out.
As we all know though, life does change and reality can be somewhat different. It might be in December and you suddenly spend twice as much on the going-out costs for Christmas, or you have life changes like a decision to go on a diet, or you need to go to different shops and end up spending more or less than planned.
The result is that actual costs do differ, both your total outlay, and then each element of it. It may be that the total stays about the same but the split changes, so although you over-spend on your eating-out part there is an under-spend on the main supermarket shop.
So let’s transfer this principle to a property service charge. The landlord may budget £800 per month made up of £400 building insurance, £120 cleaning and gardening, and then £80 towards the electricity and fire compliance. This is just a budget which in reality may change for the better or worse.
Although you might not have seen the full £120’s worth of cleaning and gardening, this might have been cut back because there was a larger fire-alarm cost that was unbudgeted. So even though you may not have seen a tangible service does not mean that firstly the original budget was a fair estimate at the start, and secondly that you need to wait until the end of the period and the actual fixed reconciliation to see the true picture.
So to some degree the original budget needs to be stuck with until the true facts are known, however, here are three ways to help things along in the meantime:
1. Ask For the Landlord or Their Managing Agent to Explain What These Actual Costs Are, and When The Actual Reconciliation and Accounts Will be Issued
Keep your cool as well, as this will help get the facts as easily as possible. If they don’t have actual figures to-hand yet, then a good Property Manager should have a feel for it anyway, so chatting through can often help you get the bottom-line facts.
This is particularly important for those buying a property with a service charge in place, and literally picking up the phone to the current agent and asking them what the reality is as opposed to the theoretical budget will save you solicitor fees going around the houses trying to answer this.
2. Know Your Rights For Information and Communication, and (Nicely) Remind Them of It
With residential properties there will be more rights, for example to have accounts issued within certain time periods, rights to be notified of high one-off or on-going qualifying works, rights to request information and actual accounts, and even rights to withhold monies if a notice hasn’t been correctly issued. Check your lease for any more specific requirements, particularly with commercial property, and also any good-practice that any landlord or agent should be going by.
3. When Things Are Not Working Out, Start Taking Action
But make sure this is the right and legal action. So, for example, a tenant will instinctively want to withhold some or all of the service charge when in actual fact it’s probably worth looking at options like the above or maybe longer term options like Rights To Manage or Enfranchisement for residential properties.
Two words of caution here though for tenants; first is to be fair and always pay at least some or the majority of the money, as although it’s tempting to pay nothing to prove a point, if everyone did this then there would literally be no money in the service charge to pay even normal undisputed costs like insurance and fire-compliance.
Secondly, only look at the threat of things first, and still be amicable yet clear and concise, as this will often prompt action rather than getting carried away with solicitors which can easily rack-up costs and delay things as people start having points to prove. So give notice before formally speaking with an advisory body, or go through the complaints process of the company, or report the matter to their regulatory body.
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