If you're living in social housing as part of a co-ownership, shared ownership or affordable rent scheme, you may well be paying a service charge. Whether you live in an apartment block or housing development, your service charge is a vital contribution to your community. It helps fund the maintenance of the systems, amenities and spaces you share with your neighbours.
But understanding how the service charge works, what it funds and who it's paid to can be confusing, particularly in developments with a mix of private and social housing.
This guide will take you through how service charges work in these mixed developments, helping you understand your contribution and its value to your wider community.
To understand how service charges work in mixed developments, we first need to understand who owns and is responsible for what:
The freeholder owns the property, including the land it's built on. In an apartment block, this may mean the freeholder owns the building itself, alongside other buildings and land in the development.
The freeholder leases each unit (for example, each apartment) to individuals for a fixed length of time. These individuals become 'leaseholders'.
Sometimes the freeholder will lease part of the estate to a Housing Association. For example, in a development with two apartment blocks, one block may be leased to a Housing Association. This makes the Housing Association the head leaseholder of that section.
Alternatively, a freeholder may sell part of the estate to a Housing Association.
The Housing Association leases its units to individuals as part of a shared ownership or co-ownership scheme, or rents them to tenants as part of an affordable rent scheme. For these residents, the Housing Association is their landlord. This arrangement is often referred to as social housing.
For other units within the development that are not within the areas leased by the Housing Association, the freeholder leases units directly to individuals. These are private leaseholders, and they may sometimes let their property to private tenants.
The development as a whole will have numerous systems, amenities and spaces that are used by and benefit all residents, in both social and private housing. These all need maintenance and ongoing expenditure.
The freeholder has an obligation to maintain the communal systems, amenities and spaces. In some instances, a Residents' Management Company (RMC) is established as a separate legal entity and becomes responsible for managing the common areas and services.
The obligation to maintain communal spaces, systems and amenities in social housing areas is retained by the Housing Association as part of their lease with the freeholder. There are also various legal and regulatory requirements designed to ensure Housing Associations provide a safe and habitable environment for their tenants.
The maintenance of shared spaces, amenities and systems is funded through a service charge. Each leaseholder has an obligation to contribute towards this service charge, with payment made annually to cover the coming year's costs.
Generally, these costs fall into four different categories:
The shared amenities, systems and spaces that require maintenance will vary depending on your development. Some may have extensive grounds, while others may have complex fire systems, communal heating or large internal communal areas. Every community is different.
When each leaseholder pays their service charge, it is deposited into the development's own, independent, interest-earning client bank account.
It’s important to remember that the service charge does not cover maintenance and repairs within individual properties.
The management fee is paid to a managing agent who is appointed by the freeholder or RMC to organise the planned and reactive maintenance programme for the development, manage site staff, provide service charge accounting and deliver other management functions. Sometimes a Housing Association may also appoint the same managing agent to manage its own property.
The managing agent (also often referred to as a property management company) is responsible for ensuring there are funds to deliver the required maintenance and services. That includes creating a budget for the forthcoming year's maintenance and services, and issuing service charge demands (requests for payment) to all leaseholders.
As a leaseholder within the development, the Housing Association is obliged to contribute towards the estate-wide services listed above, as well as the physical maintenance of the internal and external amenities, spaces and systems within their leased areas.
The cost of this maintenance and management is passed on to those living in social housing. This normally happens in one of three ways:
The Housing Association is responsible for the maintenance of internal and external communal spaces within its leased areas and manages this itself.
The freeholder or RMC-appointed managing agent issues a service charge demand to the Housing Association to cover its contribution towards the estate-wide services. This is based on a budget which sets out an itemised list of what is covered by each leaseholder's service charge contribution.
The Housing Association divides this cost per property within its leased areas and adds it to the cost of maintaining its internal and external communal spaces.
The costs requested by the managing agent are then listed as an 'estate charge' (or similar) on the final invoice received by Housing Association tenants.
The same process is followed as above, except the maintenance of external amenities and systems in the area leased by the Housing Association is managed by the freeholder or RMC-appointed managing agent.
As a result, the managing agent includes the cost of maintaining these external amenities in the service charge demand issued to the Housing Association.
This is commonly done to ensure the exterior of the whole development is maintained to a consistent standard and specification.
The Housing Association appoints the same managing agent as the rest of the estate to manage the internal communal spaces, amenities and systems of its leased area. So the managing agent is managing the internal and external maintenance and services required by the whole estate.
The Housing Association will most likely ask the managing agent to issue a service charge demand directly to its tenants.
Where this is the case for Encore, we provide a fully itemised budget listing the services covered by the service charge payments of all leaseholders or tenants. This approach allows us to have a direct relationship with all customers, whether they are in social or private housing.
Which route each development takes is down to the individual freeholder and Housing Association. It depends upon the conditions of the lease and how they wish to manage the areas of social housing.
Understanding how service charges are passed on to social housing residents is important because it offers clarity over who is responsible for what and helps you understand the value you receive for the money you pay.
It can also help you understand who you should contact if you have any queries regarding your service charge.
Where the service charge is passed on to social housing tenants by the Housing Association as part of a wider invoice, the primary point of contact for the managing agent for the wider estate will be the Housing Association, rather than individuals living in social housing.
Every year, the cost of procuring services increases.
Building insurance premiums become more expensive, the cost of materials and labour rises, contractors increase their prices (for services such as cleaning, gardening and maintenance), and new legislation may come into force that requires additional mandatory work, such as has been seen with the introduction of the Building Safety Act.
The service charge budget set at the start of each year provides for known cost variations and inflationary increases as far as possible, but costs can deviate from the budget during the year if additional unexpected maintenance costs are required.
These cost increases impact the service charge paid by all those living within an estate, including social housing tenants.
A service charge is a vital way of contributing to your development's whole community. Without it, it would be largely impossible to maintain the spaces, amenities and systems that create a pleasant place to live.
Paying your service charge on time is important because your development needs the funds to deliver services. Having the funds up front means contractors and suppliers can be paid, and the services required to maintain your estate can be delivered to the expected level.
If property owners don't pay their service charge on time, there won't be the funds to deliver the maintenance that ensures your development is safe, compliant, accessible and enjoyable for all.
But we know personal finances are rarely straightforward 100% of the time. If you can't pay your service charge, we encourage you to contact your Housing Association or landlord. If you receive your service charge demands directly from Encore, you can contact us too. We urge you to do so as soon as possible, as there are very often ways we can help.
There are additional layers to consider when there are housing association areas within a wider development. Understanding who is responsible for what, and what is funded by certain charges, is an important step in ensuring you can see value for what you pay and how it contributes to your community as a whole.
Managing an estate with its unique and wide variety of maintenance needs, along with the systems it needs and the legislation it must comply with, is a big job. But when done well with the whole community's input, it can make a place a desirable place to live, benefiting all leaseholders and tenants.
If you have any further queries about your service charge, please get in touch with your Housing Association as a first step.
