Service charges? I don’t ask for them but should I?

Hibiscouscous

I am the freeholder of a building made up of four flats. I own two. The other two are leasehold.there is no ground rent.

I don’t ask for service charges because we split the building insurance in four (i pay half and they pay a quarter each, as i own two flats).

Any Maintanence that involves all flats we just split a quarter by flat as it comes.

Is that normal? Should I still be charging service charges?

Just want to make sure I'm doing the correct thing. I figured as we just assess each issue as and when it comes up and split it there is no need?

Luckily we have a good relation!

eddddy

Hibiscouscous said:

I don’t ask for service charges because we split the building insurance in four (i pay half and they pay a quarter each, as i own two flats).

Any Maintanence that involves all flats we just split a quarter by flat as it comes.

Is that normal? Should I still be charging service charges?

It sounds like you are charging service charges.

It sounds like the service charge you charge each flat comprises of:

• 25% of the buildings insurance premium
• 25% of maintenance costs

Maybe you're asking if you should also add a management fee to the service charge - to compensate you for the time you spend dealing with insurance and maintenance, plus any out-of-pocket expenses?

Or maybe you're asking if you should ask each leaseholder to pay an estimated service charge  at the start of each year. (i.e. an estimate of insurance and maintenance costs for the year ahead)?

Or are you asking something else?

Hibiscouscous

I think you’ve got it

I don’t need to charge for them for my time we tend to work together

i I think the way we’re doing it is good if okay!

fullyrendered

You should collect service charges based on what the leases state. What do they say? 

You should familiarise yourself with Section 20 consultation requirements, because one day you will probably have to deal with works to the building that cost each of you more than £250.

Landlords and tenants are not 'friends', you have a business relationship and need to protect yourself.

eddddy

fullyrendered said:

You should familiarise yourself with Section 20 consultation requirements, because one day you will probably have to deal with works to the building that cost each of you more than £250.

Just to clarify - the OP doesn't "have to" to do section 20 consultations.

It's OK for the freeholder to deal with with things informally, for example say to the leaseholders/tenants something like...

"The roof is leaking, my mate Bob says he'll fix it for £2000. Please confirm that you agree to contribute £500 towards this, and then transfer £500 to my account. Once you've all agreed and I've got all your contributions, I'll tell Bob to make a start."


But the problem arises, if one or more of the leaseholders refuse to agree. Then the OP would then have to do a Section 20 consultation, in order to "force" those leaseholders to pay.

(And the Section 20 consultation might result in extra costs, meaning that each leaseholder has to pay £600, instead of £500.)






Edit to add...

fullyrendered said:

You should collect service charges based on what the leases state. What do they say? 

And similarly, the OP is free to request that the leaseholders contribute to things which aren't required by the lease.

e.g. The OP could say "Do you agree to contribute £1000 each towards creating a patio and water feature in the communal garden?"

If all the leaseholders agree to contribute, that's great - even if the leases don't say they have to contribute.

But if a leaseholder says "no", the OP would have no way of forcing them to contribute.




But I do agree that the OP needs to get up to speed with what the leases say, and get up to speed with the relevant legislation. Or the OP could get themselves into trouble, and lose a chunk of money.

Peter999_2

When I lived in an apartment (8 apartments) we all owned 1/8th of the freehold.    We setup a limited company and each paid £30 a month to pay for communal lights, building insurance etc.    It worked really well.

However, if there were only four of us and all got on and paid for the building insurance and any work equally then I'd be more than happy to do it the way you are.   You are saving a hell of a lot of admin/red tape and if they are all paying you what they owe then it is the best way to be - I think you are quite lucky to have a good relationship with all of them.

fullyrendered

@eddddy I won't quote your post, but it sounds like you live or work in some leasehold utopia 

Lucky you, there isn't a single block I manage where anything other than the rule of the lease and prevailing legislation has to be applied.

poseidon1

Hibiscouscous said:

I think you’ve got it

I don’t need to charge for them for my time we tend to work together

i I think the way we’re doing it is good if okay!

This is precisely how my freehold block of four flats has been administered since 2008. I own 1 flat but arrange the annual buildings insurance together with annual Companies House compliance ( we have a shared freehold company). Whenever there is a charge of flat owner, I handle the enquires addressed to the freehold company in my capacity as one of the directors.

I don't charge my co homeowners for my time and expertise.

If your arrangement is working fine as it is, I wouldn't  stress. If it ain't broke there is nothing to fix.

eddddy

fullyrendered said:

@eddddy I won't quote your post, but it sounds like you live or work in some leasehold utopia 

Lucky you, there isn't a single block I manage where anything other than the rule of the lease and prevailing legislation has to be applied.

Your comments about utopia seem a bit strange.

I'm simply explaining the law, with the help of some simple examples.

The law (and common sense) says that if all the leaseholders agree to contribute to the cost of a repair, there's no need for the freeholder to do a section 20 consultation. 

Doing a Section 20 consultation in that case would be an unnecessary waste of time and effort, and potentially waste some costs as well.