Buyers
What Does the Service Charge Cover, and How Is an Estate Run?
How the charge is set, what happens if you do not pay, and why you should read the minute book. The questions to ask before buying within a managed development.
When buying within a managed development, the service charge belongs alongside the asking price. Over ten years of ownership the monthly charge adds up to a substantial proportion of the purchase price, and it reduces the rental yield directly.
How is the charge set?
Under the Condominium Law part of the expenditure is apportioned by land share and part equally. Where the management plan provides otherwise, the plan prevails. In practice most large developments calculate on gross square metres.
- Staff costs: security, cleaning and maintenance crews — usually the largest single item
- Electricity, water and heating for the common parts
- Maintenance contracts for lifts, generators and water pumps
- Running the pool, landscaping and sports facilities
- The sinking fund — the share set aside for renewing the roof, façade and lifts
In developments with pools and extensive landscaping the charge can run to three or four times that of an ordinary apartment block of the same size. If you will not use the amenities, count that difference as an annual cost.
Two documents to read before you buy
The first is the management plan: the constitution of the development, annotated on the title register. Restrictions on pets, short-term letting, commercial use and alterations to the façade are set out here. If you are planning a use the plan does not allow, you need to see it before you buy.
The second is the minute book: the resolutions of the owners' assembly over the last two or three years. A large expense on the horizon — façade renewal, lift replacement, insulation — will show up here. This book is the clearest indication that the charge is about to rise or that a levy is coming.
What happens if the charge is not paid?
Default interest runs and the management may begin enforcement proceedings. The law also gives the other owners a statutory charge over the defaulting owner's unit. Service-charge arrears are a serious debt; if your tenant does not pay, the liability is still yours.
For a buyer the essential point is this: the Condominium Law makes the new owner liable, jointly with the former owner, for unpaid service charges. Obtaining a clearance letter from the management before the transfer takes a few minutes and forestalls a substantial surprise.
The questions we hear most
- Is the charge payable on an empty flat?
- Yes. The charge attaches to the unit, not to its use. A reduced rate may apply to items such as heating for an owner not in occupation, but there is no exemption from the common expenses.
- Should the tenant pay the service charge?
- It can be agreed in the tenancy and commonly is. But it is the owner who is liable to the management; if the tenant does not pay, the management comes to you.
- Who sets the charge?
- The owners' assembly, by approving the budget at its annual meeting. The manager cannot raise it alone; the resolution must appear in the minutes.
- Can I let short-term within the development?
- Only if the management plan does not forbid it and the owners have given unanimous consent. That unanimity is required by law for a tourism letting permit; a single objection stops the process.
Where you can verify this
The information on this page is for general guidance and does not constitute legal or financial advice. The legislation may change; consult your accountant or lawyer before acting.