Service Charges & Lease Fractions

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    Service Charges & Lease Fractions


    We are a self-managing residents association and we're attempting to iron out a lease wrinkle which I've touched on previously.

    There are 24 flats in our development out which 8 are 2 bed, 12 are 1 bed.

    Historically, the service charge has been applied evenly across the flats (£840 pa), however the lease specifies a breakdown between the larger and smaller flats of 4.25% and 4.125%. (Actually, it sets it out in fractions)

    This amounts to a difference of about £25 which means an advantage to the larger flat leaseholders of around £13.

    It has never been an issue though in as far as the delivery of services (lighting, cleaning, maintenance and insurance) is equal to all leaseholders.

    Bottom line, I suppose, is that we must conform exactly to the terms of the lease, however, to get to that point we would have to issue new demands and have all our residents complete new standing order *instructions.

    Last time we did that it was between six months and a year before we had everyone on the correct rate and collected all the arrears. Not to mention all the chasing up that involved.


    SELL124



    * monthly standing order payments as per our Deed of Variation.















    #2
    If the contributions don't change every year, I would suggest you have other problems, as well

    Comment


      #3
      OP states "There are 24 flats in our development out which 8 are 2 bed, 12 are 1 bed.", that only adds up to 20 flats?

      To make the percentages you speak of add up to 100%, i think that it should be 8 are 2 bed and 16 are 1 bed?


      Comment


        #4
        Apologies. Yes, that should be an 8 and a 16.

        Comment


          #5
          Yes the lease %ages should be followed, however as leaseholder64 comments it does seem strange that the contributions do not change frequently from year to year? How do you deal with major works such as painting, roof repairs etc? I presume that a reserve account is being used to smooth out any variation in expenditure from year to year?

          You could try only varying the standing orders for the two bed flats, so the £840 is a charge for 4.125% and therefore the charge on the larger flats at 4.25% is £865.45, resulting in only 8 standing orders needing to be adjusted.

          Might the leaseholders in the one bed flats seek a rebate for previous years as they have been "overcharged"?

          Comment


            #6
            Thank you, for input Waterbridge.

            That sounds a good move to make the adjustment only for the larger flats.

            I don't think there would necessarily be a clamouring for rebates, but, of course it ought to be considered as an obligation.

            Question is, how far would you go back as this anomaly is as old as our association (28 years).














            Comment


              #7
              For claiming "debt" in the County Court , you can only claim back 6 years due to the Limitations Act.

              For annual service charges demanded and never paid, it may be possible to claim back up to 12 years arrears but I dont know what Act covers this situation.

              If it is a minor sum due to invoicing mistake by the residents management company and none of the leaseholders are demanding correction, and the service charge accounts have been audited annually , I would consider everyone has paid up according to the levy demanded and allow the matter to rest.

              But for next year onwards , you must calculate the service charge contribution required from each flat according to the correct % in the lease to be paid before you issue leaseholders with the SO instruction form to Bank ( for SO payment over 10 months. ).

              Comment


                #8
                You should not confuse payments on account of service charges with the calculation of the service charge contributions.

                You should charge leaseholders according to the terms of the lease, which are usually quarterly or half yearly.

                You can accept monthly payments on account but you should produce to leaseholders statements of account at least once a year.

                I recommend that you follow all the requirements of the lease eg are you required to produce an estimate of the service charge expenditure for the following year, service charge accounts at the end of the year, charge or credit leaseholders with the difference between the actual and the estimated expenditure? Is there a reserve fund, are you entitled to put the difference between the actual and the estimated expenditure in that fund?

                Comment


                  #9
                  Yes, the lease stipulates that a schedule of payments is calculated at the start of the year including an amount to be set aside for major works.

                  The collection of the charge by monthly payments is provided for in a deed of variation.

                  Comment


                    #10
                    If it is a proper deed of variation, it is part of the lease.

                    Comment


                      #11
                      You do not seem to be giving us sufficient information regarding the relevant terms of the lease, as amended by any Deed of Variation and without that information, it is difficult to assist you properly.

                      You seem to have at least 2 problems, you are not complying with the lease and it is difficult to see how the service charges can be reasonable if they remain the same.

                      There does seem to be some confusion between service charges and payments made by the leaseholders. The service charges should be demanded on the dates specified in and in accordance with the lease, as amended, and accompanied by a notice of tenants’ rights. You should not increase the charges for some or all of the leaseholders simply because it is convenient to do so.

                      Payment plans can be agreed with leaseholders without the need for a Deed of Variation.

                      With the best will in the world, it is impossible to calculate service charges accurately at the start of each year, there is often unforeseen expenditure.

                      Whether or not some services are considered to be for the equal benefit of all leaseholders is irrelevant, the allocation of the costs should be made according to the lease.

                      You have not explained whether or not service charge accounts are produced at the end of the year and how differences between the actual and estimated service charge expenditure are dealt with.

                      If you have a reserve fund for major works, the amount required each year should be calculated based on the work required, the expected cost and when it is to be carried out. A reserve fund which is specifically “for major works” may not be used for other purposes eg a deficiency on the service charge expenditure.

                      Comment

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