Bradley Hall's Operations Director & Head of Property Management, Catherine Affleck, explains service charges in residential property developments.
Due to central government cuts to local authority budgets, councils have had to reconsider the services they can afford to provide to local residents. When developers create a new housing scheme it is now the norm that the local authority will not adopt the roads, footpaths or street lighting. Often the council will also not collect refuse and recycling waste. This means that these services need to be procured through private sector contractors, and managed accordingly, and this is where a service charge comes into play. Since the launch of our Land, Development & New Homes department our Property Management team has been asked to provide specialist advice in relation to the implementation and management of service charges across a range of the new build schemes upon which our residential operation is instructed in the sales and marketing.
In our experience many people are not aware that service charges are often applicable to developments other than apartment blocks. We are increasingly becoming involved in schemes where the individual house plots are sold on a freehold basis subject to an obligation to contribute towards a service charge for shared services. These services commonly include landscaping, refuse collection and the maintenance and repair of unadopted roads, footpaths and street lighting. Depending on the legal set up of the shared land ownership additional costs to provide public liability insurance and health and safety risk assessments are often necessary.
We are often asked why a service charge is payable in addition to council tax and, as there is no reduction in council tax offered for those residents who also must pay a service charge, it is often misunderstood that residents are paying for services twice. Council tax and service charges are mutually exclusive with council tax also covering a wide range of other local services such as planning, transport, public roads and footpaths, police, fire service, libraries, leisure centres, parks and recreation spaces, refuse collection and disposal, environmental health and trading standards for the whole of the local area.
As RICS Regulated Chartered Surveyors and Estate Agents Bradley Hall understand that, due to their usually uncapped nature, service charges can be an off-putting concern for buyers. It has been reported recently that the national average annual service charge in the UK is £1,863 per annum, with the average new build service charge being £2,777 per annum. In our experience developers do want to reduce the ongoing liability for their buyers and we therefore work closely with our developer clients during the initial stages of the development process to ensure that their schemes can be designed with the service charge set up in such a way as to mitigate the ongoing liability and, therefore, future service charge costs for purchasers.
Service charges run on a no profit, no loss basis and can only be used to pay for the services provided on site. To ensure transparency any future cost headings are identified in the initial budget and prospective buyers are invited to discuss their ongoing obligations with our Property Management team should they require any further information or reassurance. Bradley Hall provide service charge consultancy advice and ongoing management services to a wide range of developers, landlords and residential management companies.