Unexpected 20% increase in service charge

leafymeadow

Hi, hopefully someone can assist.

We live on a leasehold property where the annual service charge is normally paid in 2 equal instalments.  The first one was paid for in January and the second is due in June.  An annual budget is sent to the individual leaseholders at the beginning of the year.

As leaseholders we have a share of the management company

This June the invoices were sent out to the individual leaseholders, as well as a supplementary invoice which inflated the overall cost by nearly 20% without any notice. This was not done as Section 20.

Can the management company do this without any consultation.

Thanks for your help

eddddy

You're being asked to pay an estimated service charge to cover the next 6 months. Have you been given a breakdown of the estimate?

Are there any line items in the estimate which seem 'unreasonable'?  For example...

• A line item that looks too high (e.g. the amount estimated for paying the gardeners is ridiculously high)?

• A line item that seems unnecessary, or outside the scope of what the lease says the management company should be doing (e.g. repainting something that doesn't need repainting, installing a water feature)

If so, you can challenge the service charge, and take it all the way to a tribunal, if you want.

(The service charge bill might also be recouping a shortfall resulting from an underestimate of costs in the previous 6 months. And it might also include a contribution to a sink fund, if the lease allows it.)

leafymeadow said:

This was not done as Section 20.

A section 20 consultation is required before major works start. It is not required before a service charge bill is issued.

So if there is a line item on your service charge bill which is major works, the management company can collect the money now - but they have to do a section 20 consultation before undertaking the major works.

leafymeadow said:

Can the management company do this without any consultation.

As leaseholders, you have no right to have a consultation before a service charge bill is issued.

As a shareholder in the management company, you'd have to look at the company's 'rules' / articles of association to see if you have a right to consultation / voting etc.

But, for example, if the building needs, say, £50k of maintenance and repairs - having a consultation won't make the maintenance and repair requirements go away.

ReadySteadyPop

eddddy said:

You're being asked to pay an estimated service charge to cover the next 6 months. Have you been given a breakdown of the estimate?

Are there any line items in the estimate which seem 'unreasonable'?  For example...

• A line item that looks too high (e.g. the amount estimated for paying the gardeners is ridiculously high)?

• A line item that seems unnecessary, or outside the scope of what the lease says the management company should be doing (e.g. repainting something that doesn't need repainting, installing a water feature)

If so, you can challenge the service charge, and take it all the way to a tribunal, if you want.

(The service charge bill might also be recouping a shortfall resulting from an underestimate of costs in the previous 6 months. And it might also include a contribution to a sink fund, if the lease allows it.)

leafymeadow said:

This was not done as Section 20.

A section 20 consultation is required before major works start. It is not required before a service charge bill is issued.

So if there is a line item on your service charge bill which is major works, the management company can collect the money now - but they have to do a section 20 consultation before undertaking the major works.

leafymeadow said:

Can the management company do this without any consultation.

As leaseholders, you have no right to have a consultation before a service charge bill is issued.

As a shareholder in the management company, you'd have to look at the company's 'rules' / articles of association to see if you have a right to consultation / voting etc.

But, for example, if the building needs, say, £50k of maintenance and repairs - having a consultation won't make the maintenance and repair requirements go away.

No, but it could make them cheaper, see the Edinburgh Council "shared repairs scandal" from a few years ago for example.

daveyjp

20% of how much? 

You should have received a breakdown of costs to identify why there is an increase.  Building insurance isn't reducing, any maintenance companies will have increased costs of salaries and NI, material prices are increasing.  There may also be a shortfall from last year which is being recovered.

ExEstateAgent

Without seeing the invoices it's hard to understand exactly what's happened (don't they invoice the estimated costs for the year in January and you pay in two instalments? If so what was the invoice issued in June for and the additional invoice for exactly?). 

But ultimately if the costs for services have increased or there were additional works that were below the amount tha requires a Section 20 i.e. more that £250 per leaseholder, then yes they can do this. 

gm0

There is no they.  This is share of freehold.  There is a company you owe a 1/n share of. It owns the freehold. The company which is part controlled by you.  Charges the leaseholders the service charge costs to maintain the upkeep of the non-demised structure and grounds -  insurance, fire inspection, communal power, grass cutting, lift contracts, gate contracts etc. etc. etc.  Nobody but you and your fellow leaseholder/SOF owners is putting any money on the table for any of that.

There will be a couple of fellow leaseholders as long suffering directors of this setup who have issued on behalf of the company you own - a contract to a managing agent to do day to day stuff - if you are being contacted by one.  SOF directors are unpaid volunteers typically.  And don't expect to do all the work themselves. On larger sites (bigger than a house split into maisonettes). Agents are typical. But are not the controlling party.  And the agent contract could be 10k-20k+ which if you think about it doesn't buy very much employee across the year.

You do need to talk you your SOF director.  And understand where you are - as a site and company historically and financially.  Accounts are helpful.  But cost money - the more elaborate and audited they become.  Ditto - long term maintenance plans.  Can spend a lot on beautiful medium term planning and maintenance schedules and cashflow projections. Or roll along dealing with issues off a napkin year by year and spend less - on hired agents, accounts etc.  but not have the plans. There is no free lunch on that,  Pay more, do more, get more

20% rise is buttons.  Lots of places have a backlog of maintenance due to leaseholders not wanting it to go up.  A good practice is to save up for lumpy expensive long term costs.  Like replacing lifts.  Not get hit with a section 20 for the full amount in a single year.  For this a "sinking fund" or reserve payment would form part of the service charge.  

Other sites had horror shows with commercial energy contract costs when Ukraine started. And blew an annual budget and have been managing recovering from a deficit since.  Or the agent is poor. The leaseholders are rebellious and there is no SOF director - because they died or quit.  Loads of ways this can go south.  Once it does. Somebody needs to put effort in to get it stood up again.

So 20 lots of £500 annual sinking fund levy would be your 10k towards new lifts a long way out rather than a demand for 10k in a single year.  You and your SOF voters can decide to do whatever you like - that doesn't step away from the obligations of the leases.   You can vote to minimise spend on gardening, repainting, new carpets in halls etc. To have a shoddier environment and a lower service charge.  Or to do the works sooner so it's nice - when you sell soon.  Goodluck getting 100% agreement on that one.

You have two lots of rights.  Freeholder company owner vote.  And leaseholder rights as lessee.  There is no money in the SOF company other than what you put in it.  So advice from forum members schooled on leaseholder rights and tribunals and appeals - is not the first recourse as you are attacking yourself.  Not a body with resources.  If they need to take legal advice - it will end up on the service charge bill - eventually one way or another.  Engaging the director in a friendly way to clarify documentation you have been sent is the first step in most such situations

It is very hard to find and keep good agents focused.  They tend to manage their interests - same revenue, less costs, more profit - until thrown out. As they expect this to happen every few years anyway.  It is very hard to get volunteers to be SOF directors as it involves finding, contracting and managing the agent. And listening to endless beef about the service being poor. And the cost being too high.  

leafymeadow

eddddy said:

You're being asked to pay an estimated service charge to cover the next 6 months. Have you been given a breakdown of the estimate?

Are there any line items in the estimate which seem 'unreasonable'?  For example...

• A line item that looks too high (e.g. the amount estimated for paying the gardeners is ridiculously high)?

• A line item that seems unnecessary, or outside the scope of what the lease says the management company should be doing (e.g. repainting something that doesn't need repainting, installing a water feature)

If so, you can challenge the service charge, and take it all the way to a tribunal, if you want.

(The service charge bill might also be recouping a shortfall resulting from an underestimate of costs in the previous 6 months. And it might also include a contribution to a sink fund, if the lease allows it.)

leafymeadow said:

This was not done as Section 20.

A section 20 consultation is required before major works start. It is not required before a service charge bill is issued.

So if there is a line item on your service charge bill which is major works, the management company can collect the money now - but they have to do a section 20 consultation before undertaking the major works.

leafymeadow said:

Can the management company do this without any consultation.

As leaseholders, you have no right to have a consultation before a service charge bill is issued.

As a shareholder in the management company, you'd have to look at the company's 'rules' / articles of association to see if you have a right to consultation / voting etc.

But, for example, if the building needs, say, £50k of maintenance and repairs - having a consultation won't make the maintenance and repair requirements go away.

Just to clarify, we received a bill of  £ 3,618       in January along with estimated charges for the year  We paid 50% in January and another 50% in July only to receive a further bill for £668 (Some costs we can see are essential others could wait till next year or just not be done, others were just left off the 2025 budget) - we were given 2 weeks to pay and paid what we could, £200. We have now received a stage one letter threatening us with Solicitors.
Many houses here are holiday lets and owners just don't care how much the service charges are as they are making good money, there is a pool, gym and games room. From what you and others are saying the Management Committee are within there rights to do this without consultation. Yes the committee are volunteers, but we feel this is becoming a 'vanity project'.They are spending money they haven't got and expect us to pay.
We've looked in the Lease and Constitution but need to find the articles of association. Thank you

leafymeadow

ExEstateAgent said:

Without seeing the invoices it's hard to understand exactly what's happened (don't they invoice the estimated costs for the year in January and you pay in two instalments? If so what was the invoice issued in June for and the additional invoice for exactly?). 

But ultimately if the costs for services have increased or there were additional works that were below the amount tha requires a Section 20 i.e. more that £250 per leaseholder, then yes they can do this. 

ExEstateAgent said:

Without seeing the invoices it's hard to understand exactly what's happened (don't they invoice the estimated costs for the year in January and you pay in two instalments? If so what was the invoice issued in June for and the additional invoice for exactly?). 

But ultimately if the costs for services have increased or there were additional works that were below the amount tha requires a Section 20 i.e. more that £250 per leaseholder, then yes they can do this. 

Just to clarify, we received a bill of  £ 3,618       in January along with estimated charges for the year  We paid 50% in January and another 50% in July only to receive a further bill for £668 (Some costs we can see are essential others could wait till next year or just not be done, others were just left off the 2025 budget) - we were given 2 weeks to pay and paid what we could, £200. We have now received a stage one letter threatening us with Solicitors.

eddddy

leafymeadow said:

we were given 2 weeks to pay and paid what we could, £200. We have now received a stage one letter threatening us with Solicitors.

Not paying service charges in full can end up being very expensive for you.

Most management companies would charge you an administration fee for sending letters like this - maybe £40 to £60 per letter.

If the management company go on to instruct solicitors, you will probably have to pay the solicitor's fees - so that could start off at a few hundred pounds, but could escalate into thousands.

leafymeadow said:

Some costs we can see are essential others could wait till next year or just not be done...

If the service charge costs are 'unreasonable' (e.g. for work which isn't necessary), you can challenge it at a tribunal. 

HampshireH

It sounds like your £3+k is your estimated costs for the year ahead and your £600+ is the actual overspend last year now they have finalized the accounts 

The payment terms should be set out in your lease or any terms you have agreed to.

If several of you are unhappy with a short payment period or it goes against the payment terms why don't you collectively request a residents meeting to discuss payment options