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Why Am I Required to Pay a Service Charge?

Published by UK Property Accountants
Published Date: April 17, 2024

Service charge refers to the amount paid by tenants to landlords for future maintenance works. The charge may cover any and all maintenance and repair work, including cleaning windows, maintaining the lift, managing fire safety equipment, and more. Service charge payments are required by law and are standard industry practice.

The Landlord and Tenant Act of 1985 provides legal compliance for service charges. The charge is usually paid once or twice a year, either in January or April, but it is also occasionally paid on a monthly basis.

How Do Landlords Calculate Service Charges?

Landlords calculate service charges mostly by estimating their future maintenance costs. The government does not set a maximum cap for service charges. If you're worried about overpaying your landlord due to their low maintenance expenses, don't worry. You, as a tenant, will get a credit to the next yearly payment for overpayment.

Service charge payment by the tenant.

Also, if the landlord bears more charge than anticipated, they can get the remaining amount as a balancing charge. Landlords should consider giving the tenant alternative options if the work they carry out involves improvements rather than repairs.

What Is the Maximum Service Charge In The UK?

As mentioned above, there are no set maximums for service charges, but landlords are expected to set a reasonable amount. Service charges increased by 8% in 2023, and due to rising inflation, they are set to increase again in 2024. Nonetheless, the Landlord and Tenant Act protects tenants and landlords so that both parties get fair treatment.

Tribunal payment by tenant in case of unreasonable service charge.

A tenant can also apply for a tribunal if they perceive that they are being charged an unreasonable amount in service charges.

The service charge demand must include:

  • The rights and obligations of tenant, including their right to apply to a tribunal.
  • The name and address of the landlord.

If the service charge demand does not include the above requirement, the tenant has the right to refuse to pay until the demand is fulfilled.

How Do We Reduce Service Charges?

While you cannot avoid paying the service charge, there are some measures you can take to reduce it.

  • Arranging a payment plan with the landlord: A payment plan with your landlord can help you pay the service charge in instalments.
  • Requesting a breakdown of the service charge: Landlords should provide a detailed breakdown of the service charge to ensure transparency and help tenants understand the costs.
  • Negotiating with the landlord: The service charge completely depends on the landlord, so negotiate as much as you can.
  • Ensuring that the charge complies with legal requirements: The service charge must be reasonable, as per the law. If you feel otherwise, you can apply for a tribunal.

Conclusion

Service charges cover the costs of future maintenance and repair works. Under the Landlord and Tenant Act of 1985, tenants are required to pay service charges. Landlords can charge tenants for services provided, but these charges must be reasonable. Also, tenants can take unreasonable charges to a tribunal. Communication and transparency are key to navigating service charges fairly.

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