Understanding Service Charges
Understanding Service Charges
Understanding Service Charges
In shared ownership, a service charge is a monthly or periodic payment made by the shared owner towards the cost of maintaining and managing the communal areas of the building or estate. It's separate from the rent paid on the share of the property not owned. Essentially, it covers the expenses associated with shared amenities and common spaces.
What is the Shared Ownership service charge for?
If you are buying an Apartment, Maisonette or Coach House, A Shared Ownership service charge covers your share of any costs associated with maintaining and servicing communal areas or items. If you are buying a House, you’ll also be required to pay a specific service charge known as an ‘estate charge’. This will only be for the costs of delivering services to the wider estate.
This charge covers a number of shared facilities, including:
- A lift in your block
- The servicing and maintenance of fire detection and fighting equipment
- Communal heating and lighting costs
- Maintenance of the wider estate, such as litter picking and gardening costs
Shared owners also have to pay for buildings insurance and a management fee in addition to the service charge.
What is a sinking fund service charge?
Your service charge may also include a contribution to a reserve or sinking fund which is an account maintained to collect money in advance of major or cyclical works being required. This could be for things like replacing a shared roof or a new door entry system as well as any redecoration to communal areas. The fund is collected to reduce the risk of shared owners receiving a large bill when works are carried out.
The service charge should be fair and accountable. At the start of a year, you will receive an estimated service charge which you will pay from April. At the end of a financial year, you will receive a full account which compares the estimated charge to the actual charges. You will receive a refund if the actual costs were lower than the estimated, or an additional bill if they were higher.
Do I pay the full service charge if I only own a portion of my Shared Ownership property?
Yes, even if you purchase 25% of a property – you will have to pay 100% of the Service Charge as you are receiving 100% of the benefit of the services.
How is the service charge paid?
The service charge is paid at the same time as the rent, typically via one direct debit (though other payment options are available). This is reviewed annually and the new amount payable will be advised in advance, usually in February. The freeholder/service provider is likely to accept a range of payment methods, from direct debit to credit card to PayPoint.
Can Shared Ownership service charges increase?
Yes. Services charges can be increased due to a range of factors including labour costs, unexpected repairs, and rises in the Retail Prices Index.
The registered provider must give you advance warning of any increase, which should be reasonable and fair. A variable service charge can also come down if services are removed or there is a change in the frequency of service delivery.
The kinds of services provided on each development can vary. It’s important you understand what is provided before you move into a Shared Ownership property. A full service charge breakdown of costs and services is available on every development before you reserve a home.