Flat's Service Charge includes utility bills

Fufu3333

I am viewing a two bedroom duplex flat in a small block tomorrow (built circa 2007) which has a service charge of £246/month.  Estate Agent says the service charge includes utilities (gas, electricity and, I think, water).  There is a ground rent of about £50/year. 

I haven't heard of utilities included in service charges before.  Is there anything I should be wary of and how do lenders view this?  Any questions I should be asking tomorrow?

hazyjo

Is it ex-LA? That's sometimes the case with them.

Fufu3333

No, its a private build.

bap98189

Check exactly what is included. If they are really covering all electricity/water/gas then it sounds like the perfect place to setup a bitcoin mining operation (or dope farm).

kuratowski

Some flats have communal heating, and hot and cold water charged through the service charge.  I've never heard of a shared electricity supply before, it sounds unlikely.  I really wouldn't put too much store in what the estate agent says though, if you get a chance to ask the current owner then do so.

NameUnavailable

That's a very high service charge so unless it's some remarkable type of building or has large grounds/swimming pools etc. then you need to ask why it's so high. I think it's unlikey that all utility bills are included.

K_S

Fufu3333 said:

I am viewing a two bedroom duplex flat in a small block tomorrow (built circa 2007) which has a service charge of £246/month.  Estate Agent says the service charge includes utilities (gas, electricity and, I think, water). There is a ground rent of about £50/year. 

I haven't heard of utilities included in service charges before.  Is there anything I should be wary of and how do lenders view this? Any questions I should be asking tomorrow?

@fufu3333 I've done a few mortgages for these kind of flats in the Stratford/East London area.  The service charge included heating and water. It's all been relatively new high rise blocks though, not small ones, so might not be the same system as yours.

The high service charge can have an impact if you need to maximise borrowing. Lender affordablity models assume a certain figure for utilities automatically, so on their calculators you'll be paying this twice over thus artificially inflating your outgoings.

As long as the service charge isn't disproportionately large compared to the value of the flat, the size of it shouldn't necessarily be an issue on its own.

Fufu3333

Thanks all. I found this on a different ad for a similar flat on a similar block.

"" The service charge of £270 per month include your water rates, gas, electric, window cleaning as well as your buildings insurance and maintenance of the communal areas, making this beautiful apartment even more manageable for anyone looking to keep a close eye on their budget throughout the year." 

Will be clarifying this at the viewing today. 

eddddy

Fufu3333 said:

"" The service charge of £270 per month include your water rates, gas, electric, window cleaning as well as your buildings insurance and maintenance of the communal areas, making this beautiful apartment even more manageable for anyone looking to keep a close eye on their budget throughout the year." 

That's a misleading way of putting it.

Perhaps a better way would be:

The cost of  water rates, gas, electric, window cleaning as well as buildings insurance and maintenance of the communal areas will be divided amongst all the flat owners as a service charge.

This year, your share is estimated to work out at £270 per month - so for the moment, you'll pay £270 per month on account.

But it may end-up being much more (or much less) than that, so it's possible that you'll have a big shortfall to pay for, at the end of the year.

Similarly, in future years it could be much more or much less than £270 per month

And I think this type of arrangement reduces the incentive to use less electricity and gas - because any saving you make is shared amongst all the other flat owners.

And conversely, if you use more gas and electricity, the extra cost is shared amongst all the flat owners.

The net result might be that everyone uses larger amounts of gas and electricity than they might otherwise, resulting in higher service charges.

LAD917

What eddddy says can be true, but it's also possible that the building can buy in bulk / get a better deal from energy suppliers than flats would individually.  The managing agent might also keep a closer eye on rates / tariffs, etc. than flat owners individually.  Sometimes, this also eliminates per-unit "supply" charges."

I lived for many years in the U.S., and it was typical for water and heat to be included in either rent or service charge. In most American buildings, the only thing tenants / leaseholders / occupants pay is electric.  Even accounting for waste, this usually ended up being more efficient for everyone than individually meters with high monthly minimum supply charges.  

I lived in one building with electric included.  That one was more dramatic.  The big issue was air conditioning. Some people ran it 24/7, including in the shoulder seasons, with the thermostat set to 18. I'd even occasionally hear air conditioners going in snow season, with the excuse being the communal heat was too hot.  There were nearly-daily pleas from the management company to please be mindful of electricity consumption. If your building doesn't have individually-controlled air conditioning, I'd be a lot more comfortable with the risk of communal electric than if it does.

Sandtree

LAD917 said:

What eddddy says can be true, but it's also possible that the building can buy in bulk / get a better deal from energy suppliers than flats would individually.  The managing agent might also keep a closer eye on rates / tariffs, etc. than flat owners individually.  Sometimes, this also eliminates per-unit "supply" charges."

Or another route for them to get kickbacks. 

Managing agents don't have to get the cheapest options etc just as long as they are "reasonable" costs. Our water is included in the service charge, other utility bills are individual. Only this statement there was a £45,000 rebate from over estimated bills distributed over 34 units.