Your Essential Guide to All Things Service Charge
As a shared ownership customer, you pay a monthly service charge along with your net rent. The term ‘service charge’ is a collective term and covers your estate charge, buildings insurance, management fee, reserve fund and service charge.
Some of the elements noted above will have a zero charge and you will have seen them during the purchase of your new home, in your Key Information Document – Summary of Costs.
The elements you pay towards will be dependent on the type of property you have bought. Usually, the service charge and reserve fund charges are only collected from shared owners living in apartments, although on some sites this may be different.
The legislation and lease clauses that cover the charging, collection and reconciliation of service charges can be complicated. This guide aims to explain what communication you should expect to receive in a normal service charge year, and what each communication means.
What is a Service Charge?
- The service charge in this communication is an estimated charge and represents what we think the cost of delivering services to your home, building (where relevant) and wider estate will be for the coming year. We always aim to use known information, such as contracts or bills, to ensure that the estimates are as accurate as possible. This can be difficult on new build estates as some of the services may not have started.
- The most recent communication was sent in February 2024 and confirmed the estimated charges for April 2024 to March 2025. If you had not moved into your home by February, your estimated service charge will have been part of your reservation paperwork.
- We write to you in February as it is considered best practice in the Housing sector to give a month’s notice of a change in charges.
- If your new charges start from a date that is not 1st April, the letter will usually be sent to you a month before the start date of your new charges. Your lease will tell you what date your new charges will start.
Save the date- February
In February each year you will receive a letter from your management provider that tells you what your new net rent and service charges for the following financial year will be.
The letter will also tell you about any other charges you pay, such as Ground Rent. The new charges are payable by you each month.
The new charges normally apply from 1stApril each year, but the date for you will be confirmed in your letter.
Save the date- September
In September each year you will receive a further communication about service charges. As the charges you pay each month are estimated, we look at the actual costs (based on invoices from suppliers and employee costs) for the year and compare these to the estimated costs you have been charged. This is called the ‘reconciliation’ or ‘balancing figure’. The outcome of this comparison will be an additional amount to pay by you (a deficit) or an amount that you are owed (a surplus). This will be communicated to you in September, as we have to tell you about costs that you will be asked to pay within 18 months of those costs being invoiced.
For example, if a supplier invoice is paid in April 2023, we have to tell you about this within 18 months, so by September 2024.
The most recent reconciliation carried out was for the year 1st April 2023 to 31st March 2024 and was communicated to customers in September 2024.
If you owned your home for part of the year, the reconciliation process will take this into account, and your final balancing figure will be pro-rated for the number of days you have lived in your home.
Want to know a little more?
When considering a Shared Ownership home, you should be aware of the various costs and processes involved concerning your new property.
If you sell your home during a service charge year, you should talk to your solicitor about how the year end deficit or surplus will be treated. They will be able to advise you on the action you should take.
If you pay into a reserve fund, sometimes called a sinking fund, this will be shown on your service charge estimates and also in your service charge actual account. A reserve fund is a pot of money held in a separate bank account which earns interest over time. This pot of money can help to pay towards the costs of any major work or cyclical redecoration that might be required in the future. For example, it can help to pay towards the cost of redecorating any internal communal spaces, or to replace a lift in the future.
We must formally consult with you before using any money in the reserve fund, and this will tell you what we want to spend money on and whether there is enough money in the Fund to pay for it. If there is not enough money, we might have to send an additional bill when the work is complete.
We will communicate with you throughout the process, so you know what we are doing and how much it is likely to cost.
If you sell your home, the Fund will be passed onto the new owner, it is not refundable to you.
Your lease will contain information to explain how your service charge will be calculated and communicated to you.
The legislation that is relevant for service charges is the Landlord & Tenant Act 1985, specifically sections 18 to 30.
We also publish lots of helpful information on our website Shared Ownership Rent & Service Charges – how are they calculated? – Legal & General Affordable Homes (landgah.com)
Questions
If you have any additional queries about your service charges or the communications you receive, please speak to your Management Provider or visit the FAQ section of our website Shared Ownership FAQs – Legal & General Affordable Homes (landgah.com).
For more information, please contact our dedicated Sales Team who will be delighted to help you find your new home.