Understanding Residential Service Charge
There is often confusion as to what residential service charge actually is and where the money is spent. As an important conversation topic within the property management industry, here, the POD team take a closer look at service charges, management fees, discussing why transparent pricing and communication is key within the industry, with a few examples along the way!
What are Service Charges and What Are You Paying For?
A residential service charge is a fee paid by leaseholders for the maintenance and repair of shared areas and services in a building or apartment complex. This can include things like cleaning common areas, maintaining gardens, drainage, car parks, access roads and servicing elevators. Service charges can also cover the cost of building insurance and management expenses incurred by the landlord. What one pays towards is defined in the lease and leaseholders have the right to a summary of costs from their landlord and must be consulted for any charges exceeding certain thresholds.
The Importance of Transparency
There is a lot of work that goes on behind the scenes in order to meet and exceed customer expectation. Residents aren’t always aware of the ongoings because a reputable property management company aims to cause as little disruption as possible to day-to-day life. However, fundamental tasks and processes are constantly being carried out, even in the background – there is always more than meets the eye!
Let’s say a resident might leave their flat in the morning, walk down the corridor, get in the lift, go to the reception, is greeted by the concierge, goes to the car park and heads to work. They then return home and do this journey in reverse, picking up a package from the concierge on their way, alongside using the gym in the evening.
From ensuring the cleanliness and functionality of the corridor with window and carpet cleaning, lighting, heating, and fire safety measures, to maintaining the lift's electrics and safety features. The concierge service provides a friendly face and helps with packages, while attention to the environment includes landscaping, water features, and refuse management. Ensuring the car park gates are open, providing electronic car charging points, and managing the parcel service are all crucial. Additionally, amenities like the pool or gym are kept ready for booking, illustrating the extensive behind-the-scenes efforts that make the resident's daily journey effortless and enjoyable.
Every inspection, service, and test are also meticulously documented and detailed reports are analysed and uploaded to a dedicated online system for transparent record-keeping. However, these meticulous processes and their expense aren’t seen by residents and therefore wouldn’t be considered when looking at the value for what they’re paying.
If residents are ever unsure of what they’re paying for or would even like to see where their money has been used, a financial breakdown can be requested from the property management company. This will clarify any expenditure, as well as highlighting things they may not have been aware of, for example, necessary safety precautions or insurances.
How Service Charge is Calculated
A residential service charge is calculated based on the anticipated costs the landlord incurs to maintain and manage the building, and these charges are usually divided among the leaseholders in the property. How each leaseholder's share is calculated should be set out in the lease agreement. There are many ways this could be done, but common methods include splitting costs equally, by the square footage of each flat, or according to the number of rooms or rateable value.
The way the property is built, the materials used, the amenities or facilities, the machinery installed and even where certain things in the building are positioned, can all affect the maintenance fees. Early involvement of a property management company can really play its part in estimating accurate long-term costs. At POD, we’re often brought on to advise our clients on ways to deliver their scheme at their target rates or set running costs at a more realistic level.
On this note, even if a service charge represents good value for money, we would recommend checking the costing because in some cases, it may have actually been set too low to help sell new properties, potentially leaving a large bill for future maintenance.
Service Charges and Managing Fees
A managing fee and the service charge are two completely different things. Contrary to what many are often told, the managing fee is actually a fraction of the overall residential service charge total, and this is actually what the property managing agent will receive.
At POD, our fees are fixed and in reality, they form a very small percentage of the overall costs, ranging from around £75 to £125 + VAT for a freehold house and £225 to £325 + VAT for a leasehold flat (per annum and dependent on the size of the scheme). So, for example, it doesn’t matter whether the service charge is £6,000 or £3,000, our management fee remains the same. Managing agents do not make profit from increases in the total service charge amount.
Unfortunately, the truth of the matter is that the realistic cost of living in a shared residential environment is often not properly communicated to the end consumer, which is why there is sometimes confusion and frustration surrounding the matter of rising service charges and the fees earned.
The Perception of Value
The key to understanding the value of a managing agent is understanding the value of their services. The role of a managing agent is to uphold the obligations of the lease. They will take care of compliance, proactive maintenance and manage the finances of the development. They strive to make living experiences immaculate, through the seen and unseen, and are looking after your single biggest asset so it’s important they can demonstrate they have everything under control When you really look at it, a fixed management fee is a minimal price to pay in terms of value for everything received.
Given how much needs to be looked after, a low service charge may not mean the necessary tasks are being undertaken or properly monitored. In our opinion, it always pays to choose value over price. It’s just not worth the risk of something going wrong. Do you want to just trust that a managing agent has ensured the building is completely safe and compliant with legislation in the event of a fire? Or do you want to know for sure? These services come at a cost, but it’s not worth choosing the risk over what is, in reality, not very much money.
Communicating Our Service Charges
At POD management, we endeavour to demonstrate how much we as managing agents take care of, for the management fee earned, what the consumer pays for that service and how that compares to other items they are likely to spend their hard-earned money on.
We know that the key is to be completely transparent with our pricing across the board. The service we offer is second to none and we’re true to our core values – dedicated, meticulous, smart, supportive – in all that we do.
We’re professional industry leaders and leave no stone unturned when it comes to our style of property management. The laws of our industry are complex, leaving plenty of room for error for those who aren’t as experienced. With our innate knowledge of our sector and bespoke approach to each building, we know just how important it is to have the right fit looking after a property (particularly when it comes to safety and compliance), or it could compromise more than just costs.
The overall customer journey is something we’re extremely passionate about. Whether it’s proactiveness through our health, safety and compliance standards, or our smart automated reports to mitigate human error and simplify processes, our goal is to carry out the job to the best of our ability and keep those all-important lines of communication open to achieve ultimate client and customer satisfaction.
Get in Touch
Partnering with a management company that understands exactly what your property needs is a necessity that inspires positive reputation long-term and improved customer satisfaction.
If you are looking for an expert UK property management company to assist in the smooth running of your property development this year, the POD team are on hand to help you today:
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Email us at relationships@podmanagement.co.uk
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