What Is A Service Charge?

What is a Service Charge?

What Is A Service Charge & What Do I Get In Return For Paying It?

We often hear people ask “What is a service charge?” and “What am I getting in return for paying it?” so we’ve put together a brief guide here.

A service charge, (sometimes known in a variant form as an estate rent charge) is where each household on a development, or within an apartment in a block, contribute a financial sum each year to pay for the upkeep of an area or a service that communally benefits the contributing units. This may typically be the insurance of an apartment building, cleaning and lighting the communal hallways, and tending to gardening in external areas; or the upkeep of an un-adopted services such as drainage or an access road.  Service charges can also fund luxury facilities for residents such as communal leisure facilities.

The way in which a service charge is organised and details of what can and can’t be charged by the landlord and the proportion of the charge to be paid by the individual leaseholder will set out in the tenant’s lease or tenancy agreement.  The landlord (or sometimes a management company that is party to the lease) provides the services, while the leaseholders pay for them.

The landlord will generally not be paying for the services but sometimes has to pay for the services before they can recover their costs through these service charges. Originally, the costs of services were included in rental payments, but as costs and inflation increased, landlords wanted to make sure they recovered all their costs every year. Some old leases still provide services at a fixed rate, regardless of costs to the landlord. However, most service charges are based on the actual or estimated cost of the services and upkeep and thus vary from year to year. These are known as variable service charges.

“What is a service charge?” is completely unconnected to the ground rent and is not related to the contractual rental payment for the occupation of part of an area of land and anything occupying that space, but instead is used on the upkeep of the land and services provided by the ground rent.