Service Charge Split

[E.Williams]

Hi,

I have just brought a share in freehold along with the other owners in my building. We are currently trying to come to an agreement of how the service charge should be split.
There are 4 flats in the building one is a split level 3 bed with 75% of the back garden.
The rest of the garden is is communal between the other 3 flats.
Two of the flats are 2 beds.
The other is a one bed.

The entrance to the building and front garden is communal.

How would the service charge normally be spilt?

[Poppy]

There is no "normal", every building is different.

Read the lease. What are the service charge proportions? Do the proportions add up to 100%?

If it is proposed to amend the service charge proportions, you ought to obtain a report from a surveyor then employ a solicitor to amend all of the leases.

[E.Williams]

We have a solicitor working for us from the purchase of the freehold and he suggested changing the percentages that we currently have because they were based on now abolished rates.

We are now at the stage of deciding what percentage each flat pays and different flats wants different splits so I wanted some unbiased advice on what is fair, paying equal charges or charges based on size of flat.

[Poppy]

Ergo obtain an unbiased professional opinion from a surveyor. Would your fellow freeholders attempt to argue against a surveyor’s opinion?

[jeffrey]

There is no "normal", every building is different.

Read the lease. What are the service charge proportions? Do the proportions add up to 100%?

If it is proposed to amend the service charge proportions, you ought to obtain a report from a surveyor then employ a solicitor to amend all of the leases.

I agree. The default position is that the existing leases' service charge proportion rules remain unchanged. Any change:
a. needs unanimity; and
b. must be recorded formally, by a Deed registered at HMLR, into which L enters with either:
i. each lessee (by separate Deeds, one per flat); or
ii. all lessees (by a 'global' Deed- the advantage of this is that only one HMLR fee ought to be payable).

[dominic]

Suggestions you might consider, although I think a surveyors' opinion is better to avoid dispute:

+ straight split of total charge divided by no. of flats
+ weighted proportions based on flat "foot print" square footage
+ as above but applying a modifier for those flats with gardens e.g. 1 x flat footprint + 0.25 x garden footprint.
+ split based on each flat's current market value, ignoring the service charge provisions in the lease (would require a surveyor anyway).

I also suggest it would be unfair for the ground floor flat to claim, for example, that because they don;t use the first floor etc common parts, they shouldn;t have to pay for the upkeep of those parts.

[E.Williams]

Thank you everyone for your responces. I have suggested the idea of a surveyor to the other flats. This is the responce I got back.

"we may well want a surveyor to give us a current valuation for insurance purposes but a valuation does not necessarily help us decide the rationale for how to split the service charge"

Could anyone advice me how to respond? The couple from the largest flat are keen for the service charge to be split equally however some of the other flats are not.

[dominic]

Could anyone advice me how to respond? The couple from the largest flat are keen for the service charge to be split equally however some of the other flats are not.

The basic principles have got to be that the split reflects:

a. what is fair; and
b. what is proportionate to each individual flat's capacity of consumption of those services.

In the event of a dispute, look to get an opinion from a surveyor as to how modern premises normally split service charges.

[jeffrey]

Like I said, to change anything needs unanimity; or else the lessees could seek an LVT Order for Variation of Leases (which doesn't need unanimity).

[E.Williams]

In the event of a dispute, look to get an opinion from a surveyor as to how modern premises normally split service charges.

One of the flats does not think a surveyor will give a fair unbias opinon. Is there a way around this?

[jeffrey]

One of the flats does not think a surveyor will give a fair unbias opinon. Is there a way around this?

Yes. See post #9.

[LongsufferingLeaseholder]

There is no "normal", every building is different.

Read the lease. What are the service charge proportions? Do the proportions add up to 100%?

If it is proposed to amend the service charge proportions, you ought to obtain a report from a surveyor then employ a solicitor to amend all of the leases.

Surveyors tend to play the tune that whoever employed them wants to hear if it is a marginal case and whilst this may not be true of all surveyors some of them seem very willing to tread that path.

So the idea that a single surveyor will come up with an answer which is uniquely right sounds to me like nonsense. He can actually cut the cake numerous ways and the way he chooses to do so will depend on who he thinks holds the balance of power.

If you asked 10 surveyors and picked the solution favoured by at least 75% of them then you might get an answer that was actually fair and objective.

In my opinion surveyors behave the same way on service charges that management consultants tend to behave in terms of a company's plans as to whether or not it needs to axe staff..................

[James 2009]

I would propose one of two things -

(1) Based on percentage of the size of the building each flat occipies (of course the people with the biggest flat don't want this).

or

(2) Based on arbitrary, fixed percentages as set the last time rates were set (ie basically change the leases to reflect the situation when rates were last charged).

(re: 1) It never ceases to amaze me how unwilling to accept what is fair and reasonable people are when there is an unfair alternative that benefits them marginally.

[LongsufferingLeaseholder]

(re: 1) It never ceases to amaze me how unwilling to accept what is fair and reasonable people are when there is an unfair alternative that benefits them marginally.

In my place they try to sincerely argue the apportionment of the buildings insurance should still be based on the selling prices of the individual flats from 18 years ago just because the developer stupidly collected the premium that way as a short term move and certain people in positions of power benefit from it. Yet the lease quite clearly says the insurance charge may be levied only for the Premises. And the Premises is surely the size of my flat compared to all the other flats.

[sgclacy]

Why would the flat with the smallest rateable value wish to enter into an arrangement where he/she pays more? You can only change the service charge percentage if you all agree although there are very limited circumstances where you could make an application to the LVT but I would be very surprised if it was relevant in this case

Rateable values are still used for water rates so the rateable value is not dead and even if it was the formula is still relevant to the calculation of service charges as far as your lease is concerned.

If you are all happy to change then in my opinion the ideal solution would be to split costs in TWO categories.

Certain costs are not a function of the size of the flat; the accountancy fees the company secretarial fee, changing the locks to the communal hallway, maintenance of the external grounds etc

Certain costs are a function of the size of the flats; for example the buildings insurance the cost of maintaining the external fabric of the building

The first category may be split equally whereas the second by floor area.