Accounts

For the majority of flats, the service charge accounting system is similar. This is set out within the lease and cannot be altered or amended by us. It can be summarised as follows:–

At the beginning of each service charge year an estimate is prepared detailing what amounts we consider will be needed to provide the services to your building.

On the basis of this estimate you are invoiced according to the frequency set out within the lease. This will either be annually in advance, half-yearly in advance or quarterly in advance. Payment is then due.

We have set out the most commonly asked questions about the accounts together with the answers.

The Service Charge

How is the estimate service charge calculated?

The lease requires us to estimate at the beginning of each financial year the total likely expenditure to be incurred during the year. Figures are based upon a combination of known expenditure during the previous year, existing regular service contracts, quotes from contractors and our own knowledge and experience, and is subject to adjustment after the end of each financial year.

The estimate includes buildings insurance, but I already pay this to lender?

Under the terms of the lease we are required to insure the whole building but not the contents of your apartment. If your lender has requested you to insure through them, you should obtain from us a copy of the buildings insurance cover note to give to them.

Why does the estimate contain a provision for ‘building repairs’ when there is a maintenance period from the developer/a ten year NHBC guarantee ?

There are numerous matters that may have to be dealt with by the service charge fund as building repairs. Examples are blocked drains, door entry system repairs, electrical repairs, blocked gutters, etc.

There are a lot of misunderstandings regarding both the developer’s repair liability obligations and the NHBC cover. The developer will only deal with defects due to bad/defective workmanship within two years of the sale of your flat. This is not a maintenance provision for any item that requires repair. Electrical items such as door entry systems are often only covered for six months or one year from the completion of the installation. This could expire before the first flat is occupied!

The NHBC insurance cover only deals with major structural failure which occurs during the guarantee period. Therefore minor repairs (chipped roof tiles etc.) are not covered by them and will be dealt with as building repairs. Windows and doors are not deemed as structural and are therefore normally excluded.

Why is the figure in the estimate different from the figure in my lease?

The service charge figure shown in the lease refers to the estimate for the first financial year only, often estimated by developers. After the first financial year of trading service charges are reviewed.

The Audited Account

Within a reasonable period of the year end an account of what has actually been spent is produced and independently audited. This account is sent to you.

I am paying a different amount to my neighbour. Why?

There could be several reasons for this. The most common is that the lease of your property specifies a different percentage or proportion of the charges to your neighbours. This is legally binding upon you.

Another reason could be that this is the first account for your building. In these cases charges are usually levied on a ‘daily rate’ basis. You would be charged for each day of the accounting period the flat was owned by you, and your neighbours would be charged for the days they owned their flats. The ‘on account’ payment during the period of ownership could be different and this would mean that your adjustment is different even though the percentage charge is the same.

What happens to money collected which is not spent for a period?

All reserve funds and service charge receipts surplus to current requirements are allocated in a site specific bank account. The net interest earned is added to the reserve fund. Details of this are shown on your annual service charge account.

Some of the expenditure on the building looks very high considering the description of work. Why?

Within the account we can only give a very brief description of the type of work that was undertaken and not a full note. For example clearing gutters could include remaking joints, etc. and it may well have involved the use of some scaffold tower or ‘cherry picker’ hydraulic platform for access.

Accounts for Non Limited Companies

You will receive with the accounts a Statement of Account. If the account shows we have spent more than was estimated, then further payment is due on receipt of the statement. Where the account shows we have spent less than the estimate, the statement will show the amount of credit which has been placed on your account, which will either reduce what you already owe (if amounts are outstanding) or will reduce the payment you make when the next regular invoice is issued. The Balancing Credit is only applicable against your service charge and not other charges such as ground rent, or insurance. If you have any queries regarding the accounting system please speak with the Accounts Department.

Accounts for Limited Companies

You will receive with the accounts a Statement of Account. If the account shows we have spent more than was estimated, your next service charge may well be adjusted to compensate this shortfall. If the accounts show that we have spent less than estimated then funds are set aside as a contingency for future maintenance.

I am being invoiced for an adjustment for a period prior to my ownership. Do I pay this?

As the current owner, you are now liable for making this payment. However, your solicitor should have made arrangements to cover this contingency, usually by holding a small retention from the money due to your seller. In most leases there are provisions for the collection of a reserve or “sinking fund” as part of the annual estimate. The lease may well also state that this fund should be started from the second accounting year, thereby increasing the charge from the second year by the amount of the reserve.

Reserve Funds

The objective of a reserve fund is to offset the costs of non-annual major work such as decorating so that when this work is carried out there is not a massive increase in the service charge collection for that year. As far as possible, we try to set the level of reserve fund collection so that very little extra payment – if any – is required when substantial building expenditure needs to be incurred.

All reserve funds and service charge receipts surplus to current requirements are held in a site specific bank account. The net interest earned is added to the reserve fund. Details of this are shown on your annual service charge account.

When you come to sell your property, you should tell your Estate Agent that reserve funds exist, as this helps to allay fears that prospective purchases may have that there will be substantial increases in service charges, particularly if the building is due for decoration.

Service Charge Payment

Service charge payments are due in advance as defined in the lease. The reason why advance payment is stipulated is because the only source of money to pay for the servicing of your building is the service charge fund itself. Therefore, if residents do not pay, there are no funds to insure or service the building.

It is our duty to collect the service charge when it is due. We carry out this duty by issuing the invoice for payment just before the due date and by issuing a reminder some 21 days after. If payment is not received then a final 7 day reminder is issued. After this time, we will then have no alternative but to take legal action to recover outstanding amounts. The lease usually provides that the legal costs incurred are met by the resident concerned.

My last invoice showed a credit balance. Shall I deduct this from my next invoice?

No. An adjustment will be made when calculating your next invoice. Your invoice will always show as the bottom figure the amount due after allowing for all credits and debits.

Can I pay by instalments?

We regret that unless stated in the lease this method of payment is not possible.

I am in financial difficulties and cannot pay. What shall I do?

In such circumstances you should immediately contact your mortgage lender. They have an interest in your property as it is security for their loan to you. In normal circumstances they will usually assist you with the payment. It is important that you keep them advised as, if solicitors are instructed for collection of your charges, they have a duty to inform your mortgage lender that they are taking action.

The invoice received is not in my name. Why and what is my liability?

This usually occurs when a sale has taken place and your solicitor has not notified us as required by the lease. You should contact your solicitor immediately to ensure that the position is rectified. We are unable to amend our records until we receive formal notice from the solicitors. However, as the owner, you are responsible for the charges and should pay these even though you may be resolving matters with your solicitor.

I am going to sell before the period end date on the invoice. Do I still have to pay?

Yes. As the owner of the property when the invoice was issued, payment is due from you in full. You must advise your solicitor to contact HLM and request a receipt for your payment, as they will require this to obtain a refund from your purchaser or a contribution to the cost you have incurred.

If you are completing a sale prior to the beginning of the invoice period pass the invoice to your solicitor and he will then see that the purchaser becomes aware of it.

Selling Your Property

In order to sell your property your solicitor must contact HLM so that we can provide all documentation relevant to the sale. There is an administration charge for the supply of this information and answering all queries.

And Finally

Our mission is to provide a professional management service at an affordable price with residents' satisfaction our aim.

In the event of any complaints or comments regarding our service, please address these in writing to the Property Manager. If you are dissatisfied, then please write to the Company Secretary or, if still not satisfied, to our Managing Director.