Do service charges ever get reduced?

cjv

I have been taking a look at the projected service charges for a new build flat I am buying and a large proportion of the total is allocated to sinking/reserve funds.

They all look sensible as it is an apartment block, lift replacement fund, roof replacement fund etc.

One is for a "General Reserve", has anyone had their service charges reduced after a few years after there is a large amount in the reserve fund? assuming it has not been spent.

I am happy to pay the charges as it makes sense to build up reserves rather than be hit with a big bill. I am just curious if I could be paying less in the future.

Comms69

Generally no. Some people take over the management of the property and can then allocate as required. But remember that each year prices go up. So having a reserve fund of £100k may be ok this year, but in a year or two, without top ups that reserve fund is 'worth' substantially less.

cjv

Thank you, that makes sense.

After reading all the horror stories about service charges I think the breakdown of mine look quite reasonable, nothing stands out as extortionate.

It is shared ownership with a reputable housing association and has a management charge of £0.00 so I assume they do the everyday things themselves and only contract out for bigger or specialist jobs.

Smi1er

You say new build, instead of building conversion.

If it's a new build then why of why are they building up funds?

daveyjp

Smi1er wrote: »

You say new build, instead of building conversion.

If it's a new build then why of why are they building up funds?

Because even new builds have expensive items which wear out. Depreciation fund is actually a better description.

If this is a Housing Association property slightly different rules apply to service charges, but they can come down.

Murphybear

We live in a very nice over 60s housing complex. The rents are low and the service charge includes a lot of things eg unlimited use of commercial Miele washers/dryers.

The service charge changed in April, it went down by ~ £6 pcm

cjv

Murphybear wrote: »

We live in a very nice over 60s housing complex. The rents are low and the service charge includes a lot of things eg unlimited use of commercial Miele washers/dryers.

The service charge changed in April, it went down by ~ £6 pcm

Happy days!

So there is hope.

need_an_answer

not massively but you can get fluctuations each year.

One of my properties the fee has gone down by almost £20 per month this year.

What I will say is sometimes where its managed by a local company the charges do tend to be fairer.I have another property that is managed by a large national company (who are often commented on for excessive charging) and the monthly management fee has doubled in the 6 years I've owned the property.

Investigate the proposed works and balance sheets for your complex/property prior to committing to the purchase and see if it makes clear financial reading for you.

Low management charges are good short term however its things like the sinking fund you need to be looking at...low fees are good but if the funds cant always support major work or its not being planned for then you are exposing yourself to a section 20 notice of works and the payment of if work needs doing.

SmashedAvacado

Service charge is a pass through of the costs incurred in maintaining and managing the property. They can go up and down depending on what is spent.

The managing agents will typically have an incentive to spend money on the property because their fee is typically a percentage of what is spent although they are obliged to act in accordance with the law and the lease.

From year to year you should not expect service charge to be the same - and if in one year, for example, there is a large expense (like window replacement), then the next year, you ideally would see the amount spent returning to the more usual level.

Generally you should be happy that the property is being maintained - where service charges are problematic is where money is being spent on things that people don't use (a concierge is typically expensive for a small block and not good value) is spent on work that is not needed (too much cleaning, too much painting) .

need_an_answer

Lifts can be expensive to maintain so it would be encouraging to see a separate reserve for something like that.


What good managing companies also tend to do is produce a 5 or 10 year plan which should be available to inspect so you are able to see the lifecycle of the building and its planned work.

There is also the possibility that funds could be set aside for longterm projects and there also be a fund for day to day issues.

I have seen management companies where at the end of a financial year they may request a sum to be added to next years charges to cover the day to day fund and also some companies who have refunded monies where the expectation was greater than the actual outgoings.

That's quite a fair way of doing it as leaseholders often come and go...