How much is a service charge apportionment - any maths wizards understand this?

annetheman

I was told by my solicitor many months ago that I would need to pay a service charge apportionment in their words: "The balance of our legal fees will need to be settled in the days running up to completion, alongside your deposit monies and apportionments funds (the HA request one full month and one  apportioned month of rent and service charge in advance on completion)."

But my understanding through my own research (they are too slow and on-word answer'y to help me understand anything) is that how much I pay is dependent on what time of year I buy and how many months are left in that financial year. The Housing Association (it's a new build) would pay for the amount "spent" in that financial year, then I would pay for the estimate amount for the rest of the financial year.

Is this right? How much was your (or someone you know's) apportionment to pay upon purchase?

Impossible for me to know if I should set aside £1,500 or £150 for this!

If it helps, my service charge estimate is £113.40 per month, I estimate I may complete March 7th 2021 and I assume the financial year runs from April 1st. Rent is £545 per month (Shared Ownership leasehold).

Thanks for any help!

davidmcn

Surely it's no more complex than being pro rata by the number of days in the financial year? So £93.21 by my calculations (£113.4 x 12 / 365 x 25).

annetheman

davidmcn said:

Surely it's no more complex than being pro rata by the number of days in the financial year? So £93.21 by my calculations (£113.4 x 12 / 365 x 25).

Doesn't this contradict what the solicitor said - one full month plus one apportioned month, so if I complete on March 7th it would be 113.40 x 12 / 365 x 23 PLUS 113.40 for service charge, and the same calc for 545 rent?

And if so, is that normal, because my understanding of apportionment is that you pay what's left of the year, not a random month?

davidmcn

That's the calculation for the apportionment, yes add another month if that's what they need. But you know how much that is. 
I can't say whether or not that's normal, but given the payments are estimates (with the actual accounts being reconciled some time after the financial year end) it's understandable that they'd want a margin for error. 

Thrugelmir

You will pay the HA monthly for both rent and service charge on an ongoing basis. What remains of the rest of the financial year is irrelevant in terms of the funds required for completion. 

annetheman

Thrugelmir said:

You will pay the HA monthly for both rent and service charge on an ongoing basis. What remains of the rest of the financial year is irrelevant in terms of the funds required for completion. 

Yeah, this is definitely not what the solicitor has advised. I will pay the HA monthly for both rent and service charge on an ongoing basis and that has been included in my affordability assessments.

In order to complete, apportionment must also be paid by me, so that's what I'm trying to find out - how does the amount of service charge for the rest of the financial year affect the amount I must set aside for apportionment funds, as advised by the quote I included?

annetheman

davidmcn said:

That's the calculation for the apportionment, yes add another month if that's what they need. But you know how much that is. 
I can't say whether or not that's normal, but given the payments are estimates (with the actual accounts being reconciled some time after the financial year end) it's understandable that they'd want a margin for error. 

Thanks!

Given that apportionment depends on the quote/estimate for the next financial year, less or including any excess from the previous one, this is what I'm confused about:
Solicitor advised I would pay one month rent + SC, plus an apportionment amount for the remainder of month. 
So if I complete e.g. on 7th March, that would be apportionment of 23 days worth of rent + SC, plus 1 full month of rent + SC. So I must set aside around £1,500 to be safe.

If I complete e.g. on 7th April, would that then mean that I would be apportionment of 1 months' worth of rent + SC, plus 1 full month of rent + SC, and since SC is paid in advance for the remainder of the financial year, the rest of the quote of that years' financial SC?

So 23 days worth of rent + SC plus 1 full month - then pay the remainder of SC for the year after completion e.g. circa 10 x 113.4 in one lump sum, then monthly rent?

Very confusing!

davidmcn

Not sure where you're getting the idea that you'd have to pay for the whole financial year upfront. You're paying the odd amount for the remainder of the month in which you complete, plus one month. And then you just pay it monthly.

annetheman

davidmcn said:

Not sure where you're getting the idea that you'd have to pay for the whole financial year upfront. You're paying the odd amount for the remainder of the month in which you complete, plus one month. And then you just pay it monthly.

Ahhhh so I pay one month in advance all year, then they will either refund surplus or collect shortfall at the end of the financial year -- I got it!

Thanks, you got to the bottom of my confusion: you don't pay the full year of SC in advance! That's what I had been budgeting for...!

annetheman

So I need to set aside
113.40 + 545 = 658.40
PLUS, if I completed on 7th March
113.4 x 12 / 365 x 25 = 93.20
PLUS
545 / 31 x 25 = 439.51
=
1,191.11 before completion to solicitor! Right?