All estates and properties with communal areas must have service charges paid to cover the cost of maintenance and any company matters related to the management of the property.
Your legal documentation, such as the lease or transfer you signed when you purchased the property, will outline how and when these charges are billed and paid. Please refer to it for clarification.
Q: What is a reserve fund?
A reserve fund is like a savings account for the management company. Money is paid in annually and the amount is outlined in the budget each year. This money is held until an item of unbudgeted maintenance is required or when large works, which have been agreed at an Annual General Meeting of the management company, are due to be carried out.
The money in the reserve fund will be used to cover these costs.
Q: What is ground rent?
Ground rent is a charge due to the owner of the land or building, which is paid by leaseholders. Any ground rent provisions will be detailed in your lease and are typically payable annually or twice a year.
Ground rent is payable for the duration of your lease, and it will either be fixed or escalating. We highly recommend you consult with your solicitor if the ground rent is set to escalate over the term of the lease.
Q: Why do you need to pay them?
In order to ensure the property is maintained and serviced, the charges outlined in your lease or freehold document must be paid as agreed.
As an agent, we have no financial or legal interest in the property, and we cannot pay for services ourselves on behalf of residents. Some expenses, such as insurance, must be paid promptly. Your building must have the appropriate insurance in place to protect you in the case of an emergency or in the event of a claim being made.
Your legal documentation will stipulate that these charges are required from you, the leaseholder or freeholder of your property. By signing the documents, you are agreeing to pay as and when required.
Q: How do you pay them?
Your payment options will be shown on the bill (also referred to as a ‘demand’) or the Application for Payment that you will receive when the charges are due.
In some areas residents can pay by Direct Debits and Standing Orders, if both the legal documentation and client allow. A small administrative charge will be applied to these methods of payment. You can also pay via electronic transfer or cheque.
Due to the legislative changes regarding charges for using credit and debit cards, we cannot accept payment by card. We are also unable to accept cash or post-dated cheques.
Q: Who sets the budget?
We prepare an annual budget for each development and submit it to the client for approval. In the case of existing properties, we will review the previous expenditure, the plans for the year ahead and any other necessary factors in order to set a budget to cover the anticipated expenditure.
With new build sites, we will work with the developer to create a budget that encompasses the anticipated expenditure for the year(s) ahead. Once the site is complete and handed over to the residents, the process applied to existing properties would come into force. We will liaise with the client to provide a sensible and realistic budget.
Q: How secure is your money?
It is very secure. The strict codes of practice that we follow ensure that we comply with all relevant legislation and industry requirements and that we hold service charge funds in separate secure trust accounts.
In accordance with the Landlord and Tenant Act (CLRA 2002) and trust legislation, we open separate bank accounts for service charge monies, reserve fund monies and ground rent monies, where applicable.
All bank accounts are interest-bearing with interest credited to the service charge fund and accounted for in the annual service charge accounts, which are verified independently. All accounts conform to FCA regulations, ICAEW and ARMA-Q requirements.
Q: What happens if there is a deficit or surplus in the budget?
This depends on the legal documentation for each development. Some documents stipulate that any surpluses are credited back to the residents, some outline that the money is to be retained, and others will make no mention of how these funds are handled. We will follow the instructions laid out in the documentation, as well as the wishes of the instructing client.
Deficits are rare but possible, even with the best financial planning. If the deficit means core services cannot be maintained, a call for further funds may be issued by ourselves on behalf of the client. We’ll use the legal documentation, the relevant laws and regulations, and the views of the client and residents to find a good solution . Where deficits are caused by a lack of funds due to late payment, we will attempt to recover them as soon as possible. If we need to go down the debt recovery route, we will do so at the request of our client.
In rare situations, and where there are not enough funds in the reserve fund (if one is in place), a call for further funds may be issued in addition to the usual service charge. This will only be done on the grounds of health and safety or security, to protect residents like you.