Service charge on flats | Discuss

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Service charge on flats
06/02/2012
10:28 am
LeeMarsden
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We are just in the process of finishing a development of 6 flats which we have a mortgage on, the property is freehold but my partner is looking at an additional service charge on top of the rent is this the right thing to do or should it just be built into the rent?

Regards

06/02/2012
10:50 am
Paul Routledge
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Hi Lee,

I own 4 blocks with between 13 and 17 flats in each of them. I considered charging a service charge on top of the rent but decided against it because I truly felt that I would struggle to get it paid each month and it just added to paperwork, administration and a mine field of problems if a tenant wanted to have a go for any reason!!.  If they don't pay the charge it is outside of the AST you cannot really use it to evict them and they will always have a very strong case of counter claim if they tell a judge the Light bulbs were out or the windows were never cleaned and if you tried to take them to court it would cost you more than it would be worth.

Keep it simple is always best for me and is easy for the tenants, they do not want loads of bills they just don't always budget for them and therefore don't pay them and you just end up spending more time & money chasing them for nothing.

You can tell a tenant that you have incorporated it into the rent example: £525 & £75 service charge making the entire rent £600 inclusive but I would not split it, it will not be a little earner it will be a nightmare to administer and control.

06/02/2012
11:40 am
Sharon
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Is this a 'build to rent' development?

06/02/2012
12:03 pm
LeeMarsden
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Thanks for that Paul

Regards

Lee

Sharon not sure what you mean, but Yes it is a development that we have done and we are going to be renting them.

06/02/2012
2:37 pm
Paul Routledge
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Hi Lee,

Have you split title yet.

06/02/2012
2:57 pm
LeeMarsden
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Hi Paul

 

No not yet, but we are in the process of sorting everything out with the building society. Its a very long story we signed for the property on 9th August 2007 (The start of the credit crunch) and its been downhill ever since, but to cut a long story short our building society finally decided to help us out for the final part of the development (after years of misery we eventually got a BDM guy who is understanding of the situation and as been very helpful) and  and I am going to be having a meeting with them in the next few weeks to try and arrange a long term deal with them.

 

Regards

Lee

06/02/2012
6:14 pm
Paul Routledge
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Hi Lee

Depending on how much you owe Vs there current Value their may be some mileage in splitting title and remortaging them on a 1 on 1 basis. I have done a similar deals myself like this before and have a man who can sort out the finance for the job should you need help.

I will be happy to help and talk you through it if you get no results from you BS on a long term deal. 

06/02/2012
6:33 pm
PaulBarrett
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One of the big problems about trying to charge extra for service charges is that houses rent out at about the same as a flat.

Putting £100 on the rent fro the service charge doesn't stack up .

Of course you may offset all the services charges against tax.

Personally I don't pay my service charges.

They eventually contact the mortgage provider who pays and puts it on the mortgage debt.

There are some minor charges for doing that

It saves me having to pay out £5000 per year and goes on the mortgage at 2.99%

I have circumstances where I need my mortgage debt to be as much as I can achieve.

This is a brilliant way of forcing the mortgage company to loan me money by adding the charges to my debt  as they do not wish to lose the 1st charge over the title of the property.

06/02/2012
7:04 pm
Paul Routledge
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Hi Lee,

 

Thanks for that Paul I rest my case you will never get them. However I think that The difference between house and flat is a valid one,  however a lot of my professional tenants would prefer a great up together flat than they would a house. I don't think a flat is a sort of compromise for those who cant afford a house its a different market whereby views and location can command higher rents than a house.

06/02/2012
11:27 pm
PaulBarrett
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If I could get my tenants to pay rent and service charges, I would but don't think it could be sustained in the local rental market.

I suppose I could try advertising rent plus the service charge but I think I would struggle to get tenants.

But I might give it a try.

The only problem is now it looks I have long term tenants so I won't be able to try the servicce charge option

07/02/2012
9:10 am
LeeMarsden
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Thanks for all your replies, I agree that the service charge is not a good idea I just wanted some confirmation because my partner was adamant that we should apply it. At least now I have some others views on the matter.

 

Regards

Lee

07/02/2012
11:39 am
LouisVW4
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I've never come across the situation where a service charge is levied in addition to the rent. Just another opportunity for bad tenants to refuse payment, and a potentially high cost to try to recover it. I don't believe it would justify an eviction notice, so what's the point. Just increase the rent to whatever is affordable.

As Co.Sec. of our Management Company, I fight to mainain a very low service charge, which makes the flats attractive Vs the competition when owners decide to selll. However, there are many management companies who use the service charge to generate income from often hard pressed leaseholders/landlords.

What is the position where a leaseholder refuses to pay the service charge to a management company who they believe is ramping up the charge? Are there grounds for such refusal to pay?

07/02/2012
6:03 pm
PaulBarrett
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If the managing company fails to meet it's obligations they are in breach of contract.

I would as a LL take them to county court for reduction in charges due to failure to deliver services.

Of couse leaseholders may always put in to manage themselves if sufficient votes can may be obtained.

08/02/2012
7:47 am
Rigsby
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PaulBarrett said:

If the managing company fails to meet it’s obligations they are in breach of contract.

I would as a LL take them to county court for reduction in charges due to failure to deliver services.

Of couse leaseholders may always put in to manage themselves if sufficient votes can may be obtained.

Not quite as simple as that if there is a commerial element to a block such as a shop and the sq meterage is over a certain % you cant not go for right to manage. 

08/02/2012
11:56 pm
PaulBarrett
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It seems to be that nothing in life is simple.

However it  must be worthy of investigation to see what the situation might be.

Service charges and leaseholders has always been a bit of a minefield.

If I could I would have the commonhold principle as I believe leasehold is an unfair system for the purchaser.

Developers need to come away from the leasehold model and sell on the basis of commonhold.

This is something developers seem reluctant to do.

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