Ground Rent & Service Charges - What you need to know

Posted 13 January 2016 by Keith Osborne

The WhatHouse? team explains the ins and outs of two very common costs associated with new leasehold property - ground rent and service charges...

If you’re buying a property in an apartment block or as part of a shared estate, you will almost certainly have to pay service charges. It’s important to note that these charges, also called development management fees, will always have to be paid and can increase considerably over time. Another additional cost you have to consider is ground rent. In regards to both of these, here's some information and points to consider.

What are ground rent and service charges?

When you buy a leasehold property, you own the property but not the land it sits on. This means you have to pay rent for the land which is known as ground rent. Service charges, meanwhile, cover communal costs in a shared building or development. Typical costs covered by this service would be the cleaning of communal areas, gardening services, building maintenance and insurance, lift maintenance, lighting and routine repairs.

The exact services covered, however, vary from property to property. The price paid also depends on factors such as the price of property and location. Service charges for a property in central London, for example, could be thousands of pounds whereas elsewhere it could be much less. 

How to guard against being over-charged

Make sure you know how much you have to pay regarding ground rent and service charges before you sign any contract. One of the main considerations you have to guard against is service charges going up by a considerable amount in a short period of time.

The best way to avoid this is to have a clause written into your contract which regulates what you pay. This would state that the service charge cannot go beyond a certain level such as a percentage of the initial service charge.

Retirement homes

Retirement property can have particularly high service charges since they generally have more communal areas and shared services than other properties. Even when a retirement home isn’t occupied, for instance, if it's being sold, these service charges still have to be paid. 

Things to know in regards to ground rent and service charges:

* Your lease should clearly set out what is covered by the service charge.

* You have a right to know by law what the service charge is being spent on.

* This includes seeing proof of money spent such as receipts. If it’s withheld from you it’s a criminal offence.

* You only have to pay ground rent if you receive a written demand for it.

* Ground rent can only increase if you agree to it or if it’s part of the lease you’ve signed.

Service charges in different locations

Prices can vary enormously up and down the country. In Bristol, for example, you could pay around £1,500 - £2,000 per annum for a new development that includes a number of differentservices such as a communal garden and lift. A flat in a converted townhouse in London could cost anything from £4,000 per annum upwards depending on the location within the city.

It’s best to make enquiries beforehand about the actual property you're moving to.

Knowing about the (often hidden) costs that come with ground rent and service charges from the beginning could save you a very welcome amount of money in the long term.

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