Understand those Service Charges
Service charges are the annual fees that property owners pay for services provided by their housing or apartment development's management company.
These pay for the upkeep of common areas, such as repairs and running costs (e.g. electricity, lifts) for these areas, and may cover other services such as refuse collection or landscaping.
Service charges are not an optional payment if they are part of the terms and conditions of your contract to buy the unit. Once you conclude the contract, you have an ongoing legal obligation to pay these charges, usually on an annual basis. So make sure your solicitor explains these obligations.
What the service charge pays for
The following are typical items that a service charge may pay for, though the range of services will depend on your individual development:
- Repair and maintenance of common areas, car park, footpaths, roads
- Cleaning common areas, windows, carpets/mats, gutters and drains
- Lift repairs and inspections
- Electricity and lighting for common areas
- Landscape and gardening, pest control
- Security - internal locks and doors, intercoms, external doors and gates
- Safety - smoke alarms, fire extinguishers, health and safety inspections
- Refuse collection and recycling
- Professional charges (e.g. block insurance, public liability insurance, the management company's legal/auditor fees)
The service charge should not include costs relating to the original design, construction and snagging of the development.
But it may include a "sinking fund" provision – money put aside each year to cover major but more long-term expenses.
Apportionment
Apportionment refers to the way that the percentage of the overall service charge for the development is worked out for each owner. It may be calculated through factors such as the size or type of unit.
The apportionment method should be clear and transparent, and information about it should be provided to all owners. If particular services are only provided to some owners, this should also be clearly specified.
In general, the developer sets out the initial apportionment method under which each type of owner is required to pay their annual service charge/sinking fund contribution.
The apportionment should be set out in your contract to buy the home. Ask your solicitor to explain the basis on which your future service charges have been apportioned to you.
The level to pay
The overall level of service charges is not a set amount. It varies from development to development, and depends on the type of services the management company decides to undertake.
It should be set at a sufficient level to finance necessary services and maintenance for your development. Factors that may affect these running costs include:
- If common areas are designed to a very high standard
- If they have elaborate features (e.g. ponds, fountains)
- The number of lifts
- Electronic gates
- The size of the grounds and landscaped areas
- Whether 24-hour concierge/security services are provided
Service charge increases
The initial annual charge is likely to be provided in your purchase contract, but the service charge for subsequent years won't be.
Your solicitor should look for an estimate of charges for future years, and any copies of the schedule of costs used to draw up the annual service charge budget.
This budget may change from year to year, so your own payment may vary accordingly. In general, future charges should be based on normal wear and tear, inflation and new or additional services, and average inflation costs.
Deciding how much
The management company's directors decide the service charge. While they may be guided by the managing agent, ultimate responsibility for setting the charges and their collection lies with the management company.
A service charge bill should be delivered to each individual unit. In general you should be invoiced in writing on an annual basis by the management company (or by a managing agent on its behalf). The invoice should show a payment due date (e.g. 30 days).
Bear in mind that some management companies charge interest on money owed or late payments.
The management company should provide you with as much information as possible on how last year's budget was spent and how it has calculated the charge for the forthcoming year.
Tax relief
You may be entitled to tax relief at the standard rate on some service charges if you have paid them in full and on time in the previous calendar year.
Service charges paid to local authorities for the following domestic services qualify for income tax relief:
- The provision of water supply, refuse collection or disposal, or sewage disposal
- Group water schemes for water supply
Service charges paid to independent contractors for domestic refuse collection or disposal also qualify. You should contact your local tax office for further details.
Not paying service charges
If you are dissatisfied with the service provided or the information about how the service charge is being spent, you should first raise the issue with the management company, because it has the contractual relationship with the managing agent.
A contract should exist which specifies what services are to be delivered by the managing agent and the process for dealing with complaints from owners.
The management company's directors under the direction of its members should investigate any persistent problems with services.
If you are still dissatisfied, remember that not paying the service may be a breach of your contractual obligation.
Not paying could leave you open to legal action, and any outstanding debts can be tied to your property. Any monies owed may be deducted from the money you receive once the sale has gone through.
If owners do not pay the charges, your management company will also run short of money and in time it may not be able to provide even basic services. This in turn may have a negative impact on the residents' quality of life and the value of property in the development.
Related resources
Read more about service charges tax relief (PDF, 56KB)
Download our guide summarising the typical categories of company income and expenditure which can be adopted by a management company.
Read a checklist of questions to ask about service charges before you buy
Learn about your entitlements if you are a member of a management company
How well are you doing?
Answer this simple question to see how well you understand service charges.
Question: Who decides what the service charges should be in a property development?
Answer A: The managing agent employed by the management company
Answer B: An independent state regulator
Answer C: The management company