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Frequently asked Questions 1 - More Q & A

What are Service Charges?

What are Reserve Funds?

What is Ground Rent?

Where does my money go?  

Why is my Service Charge so high when I have a friend that pays half the amount?

The End of Year balancing charge relates to a period before I purchased the property. Do I have to pay it?  

Why have my Service Charges increased?

If I am selling the property in the near future, do I have to pay the charges in full?  

How can I pay my Service Charge?

What happens if the leaseholder doesn't pay?

I want to change the address my invoices and statements are sent to?  

I am the owner of this property but the invoices and statements you have sent are not in my name?

What are Service Charges?

Service charges are payments made by the leaseholder for all services which will include maintenance and repairs, insurance of the building and, in some cases, provision of central heating, lifts, porterage, lighting and cleaning of common areas etc. Usually the charges will also include the costs of management by the professional managing agent.

Service charges can vary from year to year; they can go up or down without any limit other than that they are reasonable and are in compliance with the property lease.

Details of what can (and cannot) be charged by the landlord and the proportion of the charge to be paid by the individual leaseholder will all be set out in the lease.

All costs must be met by the leaseholders. Most modern leases allow for the collection of service charges in advance, repaying any surplus or collecting any shortfall at the end of the year.

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What are Reserve Funds?

Many leases provide for the collection of sums in advance to create a reserve or 'sinking' fund to ensure that sufficient money is available for future scheduled major works, such as external decorations, roofing or lift replacement. The lease will often set out when regular, cyclical or maintenance works are due.

Contributions to the reserve fund are not repayable even when the flat is sold.

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What is Ground Rent?

Ground Rent is the rent that all Leaseholders pay to the owner of the land (the Freeholder, Landlord or Head Lessee). Terms for this payment will be set out clearly in your lease. Ground Rent is strictly payable in accordance with those terms - normally annually or half yearly.

In layman's terms, the physical space would normally be a flat in a residential building and the lease, a legal document signed by both landlord and lessee.

The lease which is normally for 99 or 125 years outlines the obligations for both parties and will usually state the price originally paid for the flat.

The lessee will be legally obliged to pay the Ground Rent strictly in accordance with the terms of the lease.

The amount of Ground Rent due can vary in each property. For example, a 2 bedroom flat held on a 99 year lease granted in 1962 may have a Ground Rent due of only £10 per annum paid annually in arrears. However, a 2 bedroom flat held on a 99 year lease granted in 2003 is more likely to have a Ground Rent in excess of £200 per annum paid annually in advance.

On a newly built block of flats the developer will decide what annual ground rent to impose on each flat together with an asking price.

Prospective purchasers would be well advised, therefore, to take detailed legal advice on their leasehold obligations before buying a flat in a residential development.

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Where does my money go and will I receive details of the property estate management budget?

All service charge payments that VFM receive are paid into a designated, ring fenced client bank account. These client funds are held in a separate account from other properties we manage.  At the end of the financial year for each block, independent chartered accountants are appointed to produce an income and expenditure statement outlining the total service charges received for the year and itemising the total expenditure. At the bottom of the statement it will clearly show how much money is left in the service charge fund.

The accounts are produced in accordance with the Landlord & Tenant Act and our Client Bank Accounts are regulated by the RICS Code of Conduct.

An annual budget including expenditure cost estimates is prepared and agreed for each estate prior to the start of its financial year. The Service Charge required to fund this anticipated expenditure is calculated and an application for payment issued to each leaseholder along with forecast expenditure and supporting details.

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Why is my service charge so high when I have a friend that pays half the amount?

Individual properties and lease particulars can vary considerably making comparisons of Service Charges difficult. In summary:

You cannot compare apples with oranges and there are probably good reasons for variances between charges for different estates. Here are some typical reasons:-

(i) You may have a more comprehensive set of services funded through your service charge (e.g. site manager, all windows cleaned, lifts, car parking, entry systems etc.).

(ii) Does your friend's service charge include sinking funds as ours usually does? If not, their charge is likely to fluctuate dramatically from year to year as large expenditure falls due.

(iii) How many apartments are in your friend's block? Small blocks tend to have a higher maintenance charge per flat and overall maintenance costs are often disproportionately expensive because the cost is shared by fewer lessees, rather than being spread across a large number. For example, a roof repair provided for only 4 flats is expensive compared to the same facility provided for 20.

(iv) Do you have extensive gardens or is your block an older building? If so, your service charge could be adversely affected.

(v) What size is your apartment? Service charge is often calculated by reference to the floor area of your apartment. If you own a two bedroom apartment and your friend owns a studio apartment then this can make a significant difference.

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The End of Year balancing charge relates to a period before I purchased the property. Do I have to pay it?

Yes. As part of the contract of sale there should have been an agreement that the previous owner of your property would still be liable for a proportion of any balancing charge. Indeed, the solicitor that acted for the previous owner may have kept back a sum of money from the sale (retention) to cover this additional charge. We recommend that you contact your solicitor as soon as you receive our invoice in order that any recovery of monies due to you can be made.

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Why have my block management service charges increased?

It may be for any number of reasons from the introduction of new legislation to changes in the property running costs or requirements.

The cost of providing maintenance services to your property or estate is assessed annually but is initially based upon our knowledge and experience with other similar properties. In future years we will have the benefit of referring to historical expenditure figures for forecasting but even so there are some matters that are impossible to accurately predict. The costs of building repairs in one year may be minimal but may be quite substantial in the next year. Additionally, we may have to take into account outside influences such as changes in Government legislation which have recently led to substantial increases in the costs of providing management services generally.

Increased health and safety regulation has required that landlords, property management companies and their managing agents must carry out health and safety fire risk assessments and asbestos surveys.

That aside, it is often difficult to accurately predict the levels of expenditure in the first year or two of a new development. As a consequence there may be increases in the costs of providing certain services for the first few years until the development is completed.

Of course, the contractors who provide services to your property will normally increase their prices yearly to cover their inflationary costs. Insurance companies likewise will make adjustments to premiums having regard to market conditions, global climate changes, increase in personal injury claims etc. Many will also review premiums taking account of specific claims history under existing buildings insurance policies. In most cases this will lead to revised premiums year on year.

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If I am selling the property in the near future, do I have to pay the charges in full?

Yes. You should pay all of the charges due on the property prior to any sale taking place. To protect the purchaser's interests, their solicitor must establish that there are no debts outstanding on the property. Part of the usual pre-sale enquiries that solicitors make, is to ask if there are charges due or outstanding against the property. If you have not paid in full it will, in most cases, delay completion of the sale of your property. Your own solicitor will apportion any money due back to you in the final completion statement.

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How can I pay my Service Charge?

You can pay electronically through internet banking or by cheque (by post). We also offer a standing order or direct debit facility.  Service charge payments should be made in accordance with the terms of your property lease to help ensure adequate cash flow to meet ongoing payment obligations.

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What happens if the leaseholder doesn't pay?

It is the leaseholder's obligation to pay the service charges and ground rent promptly under the terms of the lease. If they are not paid and the landlord is able to show that the charges are reasonable, then he can begin forfeiture proceedings. If approved by a court, this can lead to the landlord repossessing the flat. However, under the Commonhold and Leasehold Reform Act 2002, the right of the landlord will be restricted.

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I want to change the address my invoices and statements are sent to?

Please write to advise us of any change of correspondence address.

For legal reasons we cannot accept such advice over the telephone. You must write to our administration department who will then make the necessary amendments.

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I am the owner of this property but the invoices and statements you have sent are not in my name?

Please contact us. The ownership of most properties is recorded at the Land Registry. There are often restrictions to prevent registration without a certificate from the freeholder. The intention being to safeguard the interests of a new purchaser from inherited arrears of service charge. If you contact us, we will advise you if your solicitor has applied for a certificate or not and if there are any matters that are preventing the issue of a certificate.

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VFM Estate Property Management
Provident House, Beckenham, London Borough of Bromley London, Greater London BR3 1AT GB
Phone: 02086586824 Website: http://www.vfmproperty.com/