Is service charge £3,494 PA too much

[jbalciunas]

Hi,

I am interested in buying a studio - property in Shepherd's Bush, but I am concerned regarding the service charge for it - £3,494 PA.

I am still waiting for the full breakdown and if there is a sinking fund, but was told that the heating and hot water is included in the service charge as well as the building insurance, concierge, maintenance of lifts and general upkeep.

Is this reasonable? Thank you

For that part of London, quite possibly. London service charges can be extortionate.

I deal with a number of service charge clients (accountant here), and the one that I could think of off the top of my head charges £2,200 for a 1 bed flat in Bermondsey. Another client in central London charges £4,100.

I would hope for that amount there is a reasonable sinking fund to cover any major repair works and decorations. If it's an older building, costs are always higher to maintain and repair them, especially if there's a likelihood that windows will need replacing. Lifts are horrendously expensive nowadays, and a concierge service will always be pricey, as you'll be paying at least one full time person, and temporary cover when they're on holiday, etc.

It is certainly worth requesting a Budget for the current year and a copy of the most recent service charge accounts.

Ultimately, the amount you pay is calculated by reference to the budgeted costs of the property for the forthcoming year, apportioned across all lessees as prescribed in the leases. Normally this is based on square footage, so bigger flats should be paying substantially more than the one you're looking at.

Feel free to PM me if you want any further help, or I'll keep an eye out on this thread.

I should point out that neither of those service charges I've included include heating. The majority of service charges include water rates, but not many include heating.

It seems to be the older buildings that provide heating and hot water from a centralised boiler system.

It's worth noting that the most recent one of these I've come across, the boiler is not as efficient as it used to be. A lot of lessees have installed their own heating systems as a result, and there is a lot of debate amongst the lessees what will happen when the inevitable happens and the communal boiler goes wrong, particularly as the lessees who have installed their own system will have to pay for the replacement of something they don't use.

Hi,
Thank you so much for your help and reply.
It's been built in around 1935 and 1937, which makes sense. it is close to 300 sft and is on the 5th floor.

I believe this is down to the sinking fund being included?
Is there anything else I should consider before buying the property in terms of the service?

Should I consider the property if no sinking fund is present?

Thank you
Justas

Definitely check up on what the permitted increase on the service charge is going forward. Will it double every 10 years?

I'd be wary of heating and hot water being included - would you have control over the heating temperature and times?
If its all controlled centrally, then a heating system that switches off on 1st May until 1st September may be no use to you if we get unseasonably cold temperatures, likewise no hot water because 4 other flats have all decided to have a bath at the same time...

If there's a concierge on site, depending on how it's staffed then yes, that does sound absolutely possible.

Staffing, lifts, HVAC systems, etc are all costly to run. Your lease should state the apportionment or make reference to 'fair and reasonable' in which case best practice is to use square footage or rateable values.

Ask for a budget, it should come in your management pack anyway, along with 3x years of accounts, AGM minutes and insurance certificate. Check to see what the AGM minutes reflect - are people annoyed that the HW/heating have broken recently? Have they been having regular internal/external works carried out? What about the service charge - really, as long as you can afford it and each individual charge seems reasonable it's ok. But does it cover the expenditure for the whole year? What you don't want is to be paying out £4K a year AND getting a bill for an extra £1500 6 months later because there's a big deficit due to unbudgeted expenditure. And, as pointed out above, check for reserves/sinking fund balances.