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Service Charges on the Rise

Directline for Business (a Landlord Insurance Provider) have revealed research indicating a rise in property service charges, with 33% of management companies showing a rise in service charge fees in the last two years. Service charges requested from leaseholders to cover their share of the building maintenance now stands at an average of £1863; a cost that represents more than two months of average monthly rental income, a cost of £906, received by landlords.

Costs for leaseholders do not stop there. In addition, investors also have to budget for tax, mortgage payments, estate agency management and fees plus any ground rent that may be applicable to the property; So this quickly becomes a very costly business.

The service charges requested for new build properties appear to be significantly higher than those requested for older dwellings with the average charge being requested at £2777, a 96% increase than the average service charge for an older property. Little wonder with the increasing trend to provide libraries, 24 hour concierge services, gyms and even cinema rooms. All of which contribute to the increased cost to the leaseholder. On the other hand, this also makes the properties more attractive to renters and offers added value to any landlords looking to invest within this type of property.

Recent exchanges with developers have seen more private housing stock owned by freeholders subject to service charges. Owners of freehold properties on private roads or estates are being charged for upkeep of roads and gardens, less of a service charge but more commonly referred to as Freehold Management or Estate management charges. Regardless of what we decide to call these types of charges, they can often be neglected by the freeholder or not paid due to lack of funds.

Nick Breton, Head of Directline for Business said “Service charges are often a hidden cost which should be factored in when considering the affordability of a property. In some cases service charges are uncapped and can escalate rapidly. Landlords need to take into account all associated costs when purchasing a property, such as services charges, ground rent and taxes that may affect their rental yield.”

Affordability of the service charges can ultimately affect the freehold landlord’s cash flow should the leaseholder refuse to pay or not be able to pay the full balance due. It is crucial that there is a constant review of risk and credit control issues along with quick recovery of any outstanding arrears of service charges in order to maintain efficient running of any property management company, whether this be a single investor or a multi-unit company. Without adequate controls, maintenance of the property will cease and you may find yourself under pressure from creditors who have supplied services to you.

This type of creditor pressure can be avoided if the services of specialist managing and solicitor agents are employed. This will ensure that recoveries are made promptly and avoid or ease any cashflow difficulties which managing agents and resident management companies may otherwise experience.

SLC Solicitors are able to provide a fast and efficient collection of arrears of service charges on a no recovery no fee basis with absolutely no upfront charges to our clients. Instructing us to work on your behalf is a quick and painless task. We can begin collecting your service charge or ground rent arrears almost immediately. So why not give one of our team a call today and find out how we can solve tomorrows problems, today.

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