The hidden cost of a house purchase, service charges cover repairs to communal areas such as drainage, the roof and windows. Sometimes, they contribute to shared services like landscapers, gardeners, cleaners or concierge services.
There may also be a sinking fund for large-scale repairs. A sinking fund is basically a separate savings pot for the building. When bigger works need to be done, money is already available to pay out. Payments over time can be less painful than being hit with a big bill all at once.
Newbuild home developers and professional management companies usually request an annual service charge, with fees collected regularly during the year. Sometimes, dealings on an ad hoc basis mean that each owner has to pay out money just when works are required, which can cause large bills.
An annual service charge in a typical Victorian dwelling comprising four flats is likely to exceed £1,000 per resident, with the bulk of that being used for buildings insurance.
Sometimes service charges are payable in freehold houses.
New vs old
Newbuild developments increasingly offer many amenities, ranging from gyms and pools to cinema rooms. Rising service charges in these properties are a concern. Now that developments increasingly sell an all-inclusive lifestyle, the extra amenities are costing buyers more.
Landlord insurance supplier Direct Line for Business discovered that service charges in newbuilds are 96% higher than those in older dwellings.
Costs differ widely depending on how old the building is and what amenities are involved. Direct Line for Business discovered a large variation among new developments in London.
Block and estate management firms include https://www.completepropertygroup.co.uk/property-block-and-estate-management/.
For more information, see https://www.lease-advice.org/advice-guide/service-charges-other-issues/.
Things to look out for
When you buy your first home, check similar properties to establish whether the charges are reasonable. Take pains to read the lease carefully and ensure the development has a competent managing agent in place. The managing agent should be accredited by The Association of Residential Managing Agents (ARMA) and should ideally also be regulated by
The Royal Institution of Chartered Surveyors (RICS).
Look into the finer details, such as whether the service charge pays for water consumption. You should also check the arrangements for communal heating to find out if the service charge includes maintenance.