Keeping Service Charges Transparent
Service charges have been much debated in the media and beyond in recent months. Managing agents often come under scrutiny around residential service charges and what they involve. What is apparent is there is confusion and misunderstanding.
If a residential managing agent is not delivering high levels of communication, residents can feel there is a divide between what they are paying for and what work they are seeing actioned, with little apparent transparency or control over the decision-making process.
Resident satisfaction is always at the forefront of our thinking and activities and therefore, we endeavour to be as transparent as possible. Through effective communication and an open and honest approach, we are working to make a positive difference, challenge the misconceptions and ensure a resident-led approach.
We understand that any rises in service charges bring added pressure for leaseholders. We are committed to ensuring our service charges remain reflective of the real costs involved in, at least, maintaining the quality of the developments we manage.
What does a service charge cover?
A service charge is a fee paid by leaseholders for the actual cost of running, maintaining, repairing and insuring the building and any facilities or external areas, in accordance with the lease. It is calculated based on the anticipated costs the landlord incurs to manage and maintain the building. It is split between the leaseholders within the property, often based on the size of each home.
Service charges are affected by the age of the building, the way it is built and the materials used in construction, the resident amenities or facilities, and the plant and machinery installed.
Service charges can include:
- Planned Maintenance to proactively maintain plant and machinery such as servicing of lifts, upkeeping the landscaping and drainage etc.
- Repairs of communal areas and facilities, including the costs of materials, as well as contractor fees to carry out the works.
- Legal and health and safety regulatory compliance, such as insurance and fire door testing.
- Utilities for communal areas, such as lighting, heating and water.
- Reserve fund contribution to cover future large-scale repairs, to avoid unexpected fees.
- On-site staff and security (if applicable), and cleaning.
Often much of the above goes unseen by residents. Essential tasks and processes are constantly being carried out, often in the background, with the aim of causing as little disruption to residents as possible. Not only is this essential for legal, and health and safety requirements, but this a more cost-effective way of managing service charges, rather than waiting for things to go wrong and the much higher additional costs that will be incurred.
A managing agent’s fees
There is a common misconception that managing agents profit from service charge and benefit when they increase. In reality, the fees managing agents charge are a fraction of the overall residential service charge total, and this is what the property managing agent will receive. At Rendall & Rittner our fees are fixed annually regardless of any fluctuations in service charge set. Managing agents do not make profit from increases in the total service charge amount.
What has happened to service charge costs in recent times?
In recent years, rising costs have inevitably impacted service charges, just as they have the bills paid by homeowners throughout the UK. Inflation has driven up the cost of materials and essential services such as cleaning and security, as well as the increases in wholesale energy costs affecting utility bills.
New regulatory requirements, particularly those introduced by the Building Safety Act, have added further financial burdens, requiring us to meet stricter safety and compliance standards. These factors are external pressures that we must navigate responsibly while ensuring leaseholders receive a high standard of service.
Transparency and regular communication
Leaseholders have the right to a summary of costs from their landlord via their managing agent and must be consulted for any charges exceeding certain thresholds. At Rendall & Rittner we provide all leaseholders with a breakdown of annual costs and works carried out so they can see exactly where their service charge was spent.
We prioritise transparency in how service charges are calculated. Every year, we prepare detailed budgets outlining anticipated costs, which we share with leaseholders and clients. We also provide regular reports on expenditures, ensuring accountability and giving residents a clear understanding of where their funds are being used.
Open communication is central to our approach, and we actively engage with residents through meetings, resident associations and forums, providing opportunities to discuss service provisions and associated costs.
Technology also plays a vital role in ensuring effective communication. Our new MyPlace portal, which is replacing R&R Online, has been designed to give leaseholders instant access to key information about their development, from financial reports to maintenance updates. By providing timely insights, we keep residents informed about what’s happening on their development and how service charges are being spent.
Our focus is on delivering value for money, and we aim to achieve this through efficient procurement strategies that enable us to secure the best possible deals on services and maintenance contracts. A particular area where we have recently saved money for leaseholders is in bulk energy procurement – this year we have achieved a 15-20% reduction in electricity and gas rates on average across our portfolio.
Looking ahead
As a leading managing agent, Rendall & Rittner fully supports the Government’s goal of introducing regulation within the leasehold sector and residents rights to manage. We welcome measures that promote fairness and accountability, ensuring that all property management companies uphold the highest standards. Our Regulated by RICS status and accreditations including The Property Institute, the British Safety Council and Investors in People, demonstrate our commitment to transparent and responsible property management.
In summary
Service charges are an essential part of maintaining high-quality residential developments and we take our responsibility in managing them very seriously. Our focus is always on balancing cost-efficiency with the need to provide excellent service to residents. By maintaining transparency, engaging with leaseholders and embracing innovative solutions, we continually aim to keep service charges as reasonable as possible.
By Richard Daver, Co-CEO
