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How to Overcome Resident Concerns With Clear And Robust Service Charge Accounts

Service Charge Accounts Specialist, Grace Park, outlines how Leasehold Owner-Managers and Landlords can overcome resident concerns with clear and robust service charge accounts

As a leasehold owner-manager, landlord or property agent, you know that service charges are essential to the upkeep and maintenance of your properties.

But you’ll also know that service charges, and how they are spent, can be a significant bone of contention between you and your tenants or leaseholders and something that they will often seek to challenge.

Service Charge Accounts

Typical Resident or Leaseholder Concerns

In our experience working for landlords and leasehold owner-managers, the typical tenant or leaseholder concerns around service charges might include:

  • High costs: Concerns that the service charge is too high or that it is being spent on services that the tenant doesn’t think they need or doesn’t see a clear benefit from paying for. The service charge can also include a managing agent’s fees, which can frustrate some residents or leaseholders if they believe this is excessive.
  • Lack of clarity: A lack of transparency about how the service charge is calculated or used. What’s more, the service charge is typically paid in advance so a resident can feel frustrated for paying for a service that they are yet to receive.
  • Discrepancies: Residents will often be on the lookout for any discrepancies between the service charge they paid and how the money was spent by the freeholder or landlord. Any dispute of fees can cause a major headache.
  • Inadequate services: The tenant doesn’t believe the maintenance of the property is good enough for the amount of service charge paid, or there isn’t any clear evidence that the money has been spent where it should have been. Tenants may also feel that the leasehold owner-manager doesn’t respond to their complaints or requests.
  • Surprise increases: Residents or leaseholders may feel that they were not informed or consulted about any changes to the service charges, particularly if they increase! This lack of control over the service charge cost can also leave tenants frustrated and concerned.
  • Reserve funds: While reserve funds are important to keep in order to pay for larger, unexpected and costlier repairs, residents can be annoyed by what they believe is an excessive amount of surplus.

What can a leasehold owner-manager or landlord do to overcome these resident concerns?

In our view, as a landlord or leasehold owner-manager, the key to overcoming most of these concerns is to provide your residents and leaseholders with good communication and transparency around the service charge.

Above all, the service charge accounts you provide to your residents should be clear, straightforward and on time. They should outline the actual service charge income and how that has been spent in the past year.

You should also be very clear and transparent about how you determined the service charge for the upcoming 12 months.

We would also advise property agents to engage and consult with their leaseholders around the service charge process, to let their leaseholders provide feedback on the service charge and to manage any complaints, requests or issues that are raised in a timely and professional manner.

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How can Leonherman can help?

Preparing Service Charge Accounts

Under Section 18 (2) of the Landlord Tenant Act 1985, leaseholders have a legal right to obtain a summary of the service charges (or relevant costs).

And as a landlord, property agent or leasehold owner-manager you must provide your tenants with a clear statement or set of statements outlining how the service charge has been spent on an annual basis.

Leonherman will prepare these service charge accounts for you to sign off, and then present to your residents and leaseholders.

The service charge accounts we produce for clients are transparent, accurate and clearly explain the costs. They also clearly outline any reserve fund (sometimes referred to as a ‘sinking fund’) that has been kept for larger, unexpected, costlier repairs.

By producing clear service charge accounts for your leaseholders, we will significantly reduce the chance of any dispute or that the leaseholder will find any discrepancies between the service charge they paid and what it was spent on.

Certifying your accounts

While certification of service charge accounts – getting them ‘signed off’ by an accountant – isn’t a legal requirement, it is something that we strongly recommend if you want to avoid disputes with tenants and leaseholders.

The details of the relevant charges are laid out in the lease and/or tenancy agreement, and leaseholders and tenants are completely within their rights to request full visibility of the accounts. 

Leonherman is able to certify your accounts and ensure that they are watertight against any challenges.

We will check your work for errors before your tenants do! So should any dispute arise, you can be confident and safe in the knowledge that your accounts are robust and have been certified by an ICAEW chartered accountant with a specialism in block management service charge accounts.

Budgeting and Forecasting

Service charges vary from year to year and are determined by estimates based on previous years. We can help landlords and property managers to create a budget for the service charge based on expected income and expenses and to cover any necessary or unexpected costs.

Specialist Guidance and Advice

Leonherman currently acts for hundreds of developments, from major managing agents in the North-West to individual landlords and leasehold owner-managers with a small portfolio or single property.

This vast sector experience means that we understand the main issues when it comes to tenant and leaseholder concerns around service charges.

Our specialist accountants are able to provide our property clients with ongoing advice, feedback, guidance and support when required throughout the year.

We can help to ensure that any relevant expenditure on services is reliably and accurately recorded, so that when it is time to produce annual service charge accounts for residents, the process is as fast, efficient and robust as possible, and that leaseholder concerns are minimised. 

Further Information – Free Consultation

Please follow this link for more information about our service charge accounts service and to book a free consultation with our specialist, Grace Park, or call 0161 249 5040.

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