Buying A Property With Service Charges

Richard Daver, managing director of Rendall & Rittner, takes us through his top tips when buying a property with service charges.

Service charges can seem complicated for property owners, especially for first-time buyers who are unsure about what they include; what are your top tips for those looking to buy a property that includes them?

1. Ask to see the lease

Details of what can and cannot be charged by the landlord and the proportion to be paid by the individual leaseholders will all be set out in the lease. The service charge typically covers the cost of running and upkeep of a development, including general maintenance, cleaning of communal spaces, repairs and buildings insurance. It also covers mechanical and electrical servicing and utilities for example lighting of shared areas and operating lifts, as well as the running of any residents’ facilities, such as a gym.

2. ARMA Agent

Make sure the managing agent of the property is ARMA (Association of Residential Managing Agents) accredited. ARMA accredited managing agents must meet the ARMA Consumer Charter & Standards, a bespoke set of professional standards aimed at consumer protection and best practice.

3. Ask for details of service charges levied over the last three years

You can ask your estate agent or solicitor to help provide a breakdown of all service charges which previous residents have had to pay for your property. These former costs will give you a feel for how the property is managed and whether the charges follow a predictable pattern or vary dramatically from year to year.

4. Find out if there are any major building works pending

It is not uncommon for properties to need major building works, such as the replacement of a roof, which can result in a sudden sharp hike in service charges. Make sure there is nothing like that in the pipeline if you are buying a leasehold property. If works are planned, then make sure to check what reserve fund levels there are and how any works would be paid for.

5. Check the details

Read any material you are issued by your agent and if you do not understand then ask the agent for clarification.

Do you think buyers' expectations are higher now than they used to be? If so, why do you think that is?

Yes, if anything all consumers’ expectations are higher than ever and that includes homebuyers. Part of that is because we are living in a world where people place higher importance on the quality of their experience and they demand higher levels of choice and flexibility. Customers want us to demonstrate the value for money they are getting for their service charges.

We are aware that high levels of customer service are key to enhancing the resident experience, so we are always looking at ways to add value for the people that live in the properties we manage. Whether that is through our Residents’ Club, on-site amenities, community events and the personal touch from our estate teams.

What are the more unusual things that property owners pay for in their service charge in some of your properties?

New build developments often include on-site facilities that are maintained and run under the service charge. Frequently found are gyms, business suites, private cinemas and residents’ lounges, but in some high-end developments that list is becoming more elaborate. Facilities we manage include wine cellars, snooker rooms, licensed clubs, a private dining facilities and even virtual golf, all calling for a professional and well-trained team to run them to the best effect. Far from the role of the concierge to receive parcels, services required are often varied and specialist.

Do service charges for older properties tend to be higher than in more modern units?

This depends on the type of property and its facilities, so it varies. Older properties tend to be smaller but can have expensive upgrade works requirements that have to be factored into the costs.

However more modern buildings can be more complex both in terms of how they are built and their maintenance and mechanical and electrical servicing. They are also more likely to have higher levels of amenities to look after, which can add to service charge costs.

Rendall & Rittner has set up a Residents’ Club; can you tell us a bit more?

We see repeatedly that community feeling contributes significantly to the mood and wellbeing of individuals and that’s what we want to encourage. We pride ourselves on offering more than the average property manager and the Residents’ Club is something designed to bring people together, provide them with useful information and special deals, and just make them feel part of a community. Now as the country emerges from lockdown, maintaining that sense of neighbourliness will be important and one good thing to have come out of the situation. We are strongly committed to playing our part in developing strong and sustainable communities, as they adjust to the new normal and into the future.

Are buyers protected from service charge fees escalating beyond inflationary levels?

We cannot strictly put a cap on service charges, because whilst we do our best to bulk procure and offer good value, market rates and events can drive higher than inflation increases for things like insurance and utilities. There may be other unforeseen requirements that add to future costs for example the increased requirements around fire safety, such as the appointment of a building safety manager, may add to the cost. Rising building costs also will also impact the future costs of repairs and maintenance on new developments.