Understanding your service charges

Around this time of year, many of you will be receiving service charge notices.  For the uninitiated, we’ve assembled a helpful guide for you to understand these charges and how they affect you.

What is a Service Charge?

Your service charges are calculated on an annual basis depending on the terms of your lease or freehold covenants.  These specify:

  • what you pay for
  • what percentage of the overall cost you pay
  • the date the budget is set (financial year)
  • payment terms (monthly, quarterly, bi-annual or annual)

These may be different depending on:

  • whether you live in a house on an estate or a flat
  • payment terms agreed by your management company
  • the date your lease was signed or set up by the company

The service charge only covers communal services i.e. anything shared by more than one property.

Examples of these services include (but are not limited to):

  • communal cleaning
  • grounds maintenance/gardening
  • communal repairs
  • bulk rubbish removal
  • communal electricity
  • communal water
  • communal TV systems
  • buildings insurance

It also covers administrative items when required, such as:

  • managing agents fees
  • accountants fees
  • postage
  • legal advice
  • surveyors and other professional fees
  • directors’ & officers’ liability insurance

Finally there may also be an element for a reserve fund.  This is a type of “savings plan” against future expensive works such as a communal roof replacement or car park resurfacing.  Whilst it isn’t possible to guarantee that this fund will cover such work in full, PMMS and your freeholder or Management Company will try to project the likely cost and budget accordingly.

Service Charge Demands

When you receive your service charge demand, towards the end of your management company’s financial year, it will contain a number of pages.

All demands include the Service Charge Demand – this shows how much you are required to pay for the year.  This page will include:

  • the sum you need to pay
  • your property reference number (which must be quoted on ALL payments)
  • the company bank details
  • details and tear-off slips for the payment options
  • name and address of the landlord claiming the service charge.  This is usually your management company or freeholder.

If your management company allows monthly payments, a Standing Order Form will be enclosed.  This should be sent to your bank by the date stated to ensure the payments commence on time.  PMMS are not able to amend a standing order – this is an agreement between you and your bank.

A copy of the Budget will also be included.  This will show the service charge broken down between each element as described above.  If you live in a flat on an estate, there may be two separate budgets provided.  One will relate to the charges for your block of flats and the other for the general communal area which may be shared by more than one block of flats (or houses).

If you live in a leasehold property (usually a flat although some houses are leasehold), you will also receive a Summary of Rights and Obligations.  This is a standard document and we are legally required to send this with all leasehold service charge demands.

If you live in a house, you are usually a freeholder and this wouldn’t apply.

If we are planning major works to your block or estate in the coming financial year, you may also receive a Supplementary Payment Request for additional funds.  If this is enclosed there will always be a covering letter to explain what it is for.

You should check the payment terms carefully and ensure the requirements are met to avoid arrears action and further administration charges.

If you know you are likely to be away when the demands are issued, you could make an early payment based on the current year’s budget.


There are always 3 columns showing (from left to right):

2016 Budget 2016 Actual 2017 Budget
Cleaning £3,820 £3,510 £3,820
Gardening £2,600 £2,894 £3,000


Usually if the budget and spend are similar, the same budget amount will be used for the following year.  This would only alter if the Property Manager is aware of a future change, for example, the contractor is raising their prices or additional work will be required.  They would also take into account any legal changes such as the recent increase to Insurance Premium Tax or any change in the VAT rate.

If a larger sum has been spent than budgeted, the Property Manager will consider whether this spend is likely to continue, for example, if the contractor has increased their price.  If the current spent is unusual, for example the replacement of an intercom, and is unlikely to occur again, the budget will be kept the same.  However if the increase in spending is likely to be an ongoing trend, they will increase the budget accordingly.

The budgets will always be approved by the directors of your management company or your freeholder before they are issued.

If you have any further queries about your service charge, please contact the PMMS team.