If you’re buying a property in an apartment block, or part of a shared building, you’re likely to have to pay service charges. You may also have to pay ground rent, depending on whether the property is leasehold or freehold.
So, what is ground rent? What is a service charge? And when do you have to pay these charges? Keep reading for answers to these questions and more in your complete guide.
What is ground rent?
If you own a leasehold property, then you’re likely to pay ground rent to the freeholder. It’s a payment you make to whoever owns the freehold to occupy the land your leasehold property is built on.
Ground rent will be detailed in your lease, and it’s only payable if it’s specified in that lease. It falls due on a certain date and, if you fail to pay, your landlord can take legal action. You can be asked to pay unpaid ground rent for as far back as six years.
Your ground rent can increase if it specifies this in your lease, or if you agree to pay a higher amount.
What is a service charge?
If you live in an apartment block, or a shared estate, you are likely to pay a service charge. This service charge covers the cost of any maintenance or upkeep to the building. Your landlord is required to provide any services detailed in your lease, and your service charge may include:
- Cleaning and upkeep of communal entrances, such as entrance halls or staircases
- Maintenance and repairs to the building, for example to the roof or exterior walls
- Maintenance of communal grounds, such as gardens
- Any staff such as a concierge or porters
- Buildings insurance (see below)
- Lighting of communal areas
- Fees to the management company
Services are normally paid for by all the leasehold tenants and charges typically need to be paid before any work takes place. Note that charges aren’t capped and they can increase and decrease without any repercussions for the landlord.
However, fees must be reasonable, and landlords can’t simply claim back significant charges from leaseholders. If your landlord intends to carry out work that would cost in excess of £250 per leaseholder, or enters into a qualifying contract, then they are obliged to consult with the you in advance by serving a Section 20 Notice.
Check your lease or tenancy agreement which will detail the service charges that you'll need to pay while you own/rent the leasehold property. You’ll normally pay your service charge monthly or quarterly.
When you buy a leasehold property, establish through your solicitor what the service charge will be. Your conveyancer will obtain a leasehold information pack from the seller’s solicitors, which will contain details regarding service charges and the level of past charges and details of any proposed major works.
Note that retirement properties can have particularly high service charges since they generally have more communal areas and shared services than other properties.
And, even when a retirement home isn’t occupied (for example if it's being sold) these service charges still have to be paid.
What about buildings insurance?
When you live in a flat or apartment, your landlord will normally be responsible for the insurance of the building. This covers the physical structure of the building. A contribution towards buildings insurance is typically part of your service charge.
As a leaseholder you are entitled to see a copy of the insurance policy, and if you think the cost is unreasonable you can challenge the cost through a tribunal. The request must be made in writing and the landlord must provide the summary and allow you to inspect and take copies of the policy within 21 days of receiving the request.
Even though the buildings insurance may be included in your service charge, you’ll still need to think about arranging your own contents insurance to protect your personal belongings against theft, fire and accidental damage.
What is a reserve charge?
Part of your service charge payment may also be a contribution towards a fund designed to cover any unexpected maintenance or repairs. This is generally called a ‘reserve’ or ‘sinking’ fund.
This fund is set aside by the landlord to pay for major works such as roof repairs of external decoration. It means that the cost of more significant jobs can be spread over a number of years. A reserve fund ensures that all tenants contribute to the cost of major work, not just those who are living in the building at the time it is carried out.
It also means that, in the case of an unforeseen circumstance such as storm damage or flooding at the property, there will already be money to put towards rectifying it.
There are rules about how your landlord must manage these funds. If a dispute arises about how these funds are being used, this can be referred on to a solicitor who specialises in lease law to resolve
You won’t usually be able to get back any money you pay into a reserve fund, for example if you move house.