Service Charge

Question 1

What is a service charge?

Answer 1

An amount that tenants pay to cover the cost of providing communal services to a building or the surrounding estate

Question 2

What is Service Charge guidance note you use?

Answer 2

Service charges in commercial property, 1st edition (2018)

Question 3

Aims of Service Charge Professional Statement? 

Answer 3

• Improve best practice, uniformity, fairness and transparency in management and administrations of service charges
• Ensure timely issue of budgets and YE certificates  
• Reduce cause of disputes, and provide guidance on dispute resolution 

Question 4

What are the 9 mandatory requirements in Service Charge Professional Statement? 

Answer 4

• 2,3,2,1
• Recover expenditure in line with lease terms
• Recover no more than 100% of costs
• Annual provide budgets and explanatory notes
• Annually provide expenditure certificates
• Annually provide apportionment schedules
• Service charge money to held in a separate bank account
• Interest must be credited to SC account
• When acting for tenant, advise that if disputing payment then any withhold the amount in dispute

Question 5

There are also 24 CORE Principals, name main ones.

Answer 5

• One being VALUE FOR MONEY: The manager should procure quality service standards to ensure that value for money is achieved at all times. The aim is to achieve effective, value for money service rather than merely the lowest price
• Costs should be transparent
• Management fees must be on a fixed basis

Question 6

What are the timescales for reporting within the Service Charge Professional Statement?

Answer 6

• Issue budgets, including comments and matric, minimum 1 month prior to start of SC year
• Issue reconciliation / expenditure certifications, with explanations, within 4 months of SC year-end

Question 7

What is a budget?

Answer 7

The expenditure estimated that will be incurred in a given service charge accounting period

Question 8

How can you achieve value for money?

Answer 8

• procure quality service standards - achieve value for money as opposed to cheapest price
• Competitive tenders
• Formal re-tendering

Question 9

Responsibility of Property Manager when issuing service charges? 

Answer 9

• Ensure value for money  
• Ensure quality services that are regularly reviewed  
• Ensure standard of services are monitored  

Question 10

What is a sinking fund? 

Answer 10

A fund formed by periodically setting aside money for the repair or replacement of wasting assets’ e.g. periodic maintenance such as roof repairs needed every 5 years 

Question 11

What is a reserve fund?

Answer 11

• A fund set aside to cover the cost of major works or other significant items of expenditure 
• Useful for unexpected expenditure

Question 12

What is a depreciation charge? 

Answer 12

• Measure of the wearing out or reduction in life of an asset 
• Depreciation distributed across the useful life of the property (rather than taking one larger deduction the year you buy or improve the property) 

Question 13

4 methods of service charge apportionment? 

Answer 13

• Floor area 
• Fixed percentages  
• Weighted floor area (typical in shopping centre) 
• RV 

Question 14

What are management fees and how should they be calculated?

Answer 14

• Fees are set on a fixed price basis rather than being calculated as a percentage of expenditure - usually a fixed fee subject to annual review or indexation
• A % is not appropriate as it is considered to be a disincentive to the delivery of value for money
• Code states that the cost of collecting rent should be excluded from the service charge management fee