What is a Service Charge?

In your lease, you will see that the Landlord has to keep the whole building in good repair, but you and the other flat owners have to reimburse the costs of doing this. This is called a ‘Service Charge’. The Charge normally covers not only general maintenance and repairs, but also insurance of the building and possibly also maintaining lifts and pumps, lighting and cleaning of common areas, health & safety inspections and perhaps even the cost of a concierge if one is employed . The Service Charges may also include the costs of management by the landlord or by a professional managing agent, and they ought to include contributions to a reserve fund if the lease allows this.

What is a Ground Rent?

A Ground Rent is a payment made by the leaseholder to the landlord under the terms of the lease, and it could be considered as a payment to the freeholder as rent for the land on which the block of flats has been built. A lease is a tenancy and so it is normally subject to the payment of ground rent, but this may sometimes be defined as a peppercorn. It is an income for the landlord, not a payment for the provision of services.

What is Buildings Insurance?

If the lease states the Freeholder is responsible for insuring the building, then they will arrange cover with an insurer, and collect each person’s share of the premium. A Right to Manage Company has the right to place the insurance, whatever the lease may say.

What is a Reserve or Sinking Fund?

Tribunals get upset if you use the wrong word: a Sinking Fund is a collection over the life of a piece of plant or equipment for the original cost incurred. A Reserve Fund is a provision for future non-recurring expenditure, such as roof or lift replacement. It would also cover the external or internal decorations of the building, as set out in the lease. Many leases provide for the landlord to collect sums in advance for such a Fund, but not all leases do this, and not all Landlords or Managing Agents collect one even if permitted. Any competent Managing Agent will have a Property Maintenance Plan prepared by a Surveyor so that a reasonable calculation of the annual collection can be made so that the costs are spread evenly over a period of fifteen or twenty years.

Why might a lender (or mortgagee) make a payment for arrears of Service Charges?

The lender has an interest in the property, which they will want to protect. The lease in certain circumstances allows a landlord to ‘forfeit’ the lease, in other words gain possession of the flat and be able to sell it to somebody else. So a lender with an interest in the property may want to pay the arrears to prevent the landlord repossessing the property.

What is a lease?

It is very important that you ask your solicitor for a copy of your lease so that you can refer to it if issues arise in the building. The lease sets out the conditions under which the landlord allows you to use the flats, it sets our your obligations, and also the obligations of the landlord. There may also be ‘Regulations’ in the lease, and you need to know these and abide by them.

What is a management company?

You may find that your lease has three parties signing it: you, the Landlord, and a Residents Management Company, or ‘RMC’. If you are public spirited, you can join the Board of Directors and help run the building. We can provide you with a helpful booklet: Help! They Want me to be a Director. If there is no RMC, you may find that there is a RTM Company – a company set up under the Commonhold and Leasehold Reform Act 2002 which enables the flat owners to control their own destiny by stepping into the shoes of the landlord.

What is a Freeholder or Landlord?

The Freeholder owns the land on which the building stands, and the ‘reversion’ of the building. After 125 years, or whatever, he gets the building back and can sell the flats again to new people, if he is still alive. Sometimes when there are shops on the ground floor, the Freeholder may grant a Headlease of the floors above the shops. The Headlease and the underleases (one of which will be your flat lease) will define the relationships and responsibilities of the parties. Anybody who grants a lease can be considered a Landlord, but only the person who owns the land can be called the Freeholder.