What is service charge?
Service charge is the fund that pays for all the shared services that your building requires.
Imagine your building as a chest of drawers, with your flat as an individual drawer within the chest. While you are fully responsible for the contents of your 'drawer', it's vital that the chest that contains it is looked after. Your lease gives that responsibility to us, and the service charge money we collect is used wholly for this purpose, to care for your building's shared services.
Service charge calculations
Service charge needs to be billed in advance so we can ensure there are funds available to pay for the costs associated with managing your building/estate. So the amount of service charge you pay as a homeowner will be based on an initial estimate. Exact (actual) costs are not known until after the financial period in which the charges were incurred, in April. If it turns out we spent less than the original estimate, your share of the surplus money will be returned to you, while if you've underpaid we'll need to collect additional money to cover the costs.
What's covered?
- Cleaning
- Insurance
- Maintenance
- Property management
- Repairs
- Utilities
Service charge calendar
April marks the end of one service charge year, and the beginning of a new one.* If we're the ones responsible for your building/estate's management, we'll follow the timescales below to issue estimates and final (actual) costs.
Estimate
We'll send you a draft estimate of your service charge in late November/early December, and invite feedback. This will give you an opportunity to raise any concerns or request any additional information or clarification about how your money is spent.
We'll then send out a final estimate with commentary (explaining why certain costs may have increased or decreased) early in the year, before the charge period begins in April. We'll always give you plenty of notice before any changes or significant expenditure.
Charge period
You'll usually be expected to pay the estimated service charges between 1 April and 31 March the following year. The charge is broken down into 12 monthly payments, each of which is due on the first of the month.
If, during the charge period you wish to query your building or estate service charges, you're free to do so at any time via your PMO. But please bear in mind that these costs are estimates and the final (actual) costs will not be received and audited until after the end of the service charge year, the following April.
End-of-year accounts
From April, we'll begin to inspect all the final (actual) costs associated with your building/estate’s service charge account from the previous year. These will then be inspected and audited by a suitably qualified independent accountant.
Once this process is complete, we'll issue you a full and clear breakdown of the final (actual) service charge costs for the year in question. You can expect to receive these end-of-year accounts (along with explanatory notes) by 30 September of the same year.
If we collected more money than we spent, your share of the money will be returned to you as a credit on your account within two months. Similarly, we'll need to collect additional money from you if we spend more than we estimate
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September Full and clear breakdown of the final (actual) service charge costs for the current financial year (April-March) sent to homeowners, describing surplus or deficit. |
October NHG sends letter advising of Direct Debit amendments in event of deficit. |
November Deficits and surpluses for the previous financial year are added to resident accounts |
December Service charge draft estimate for next financial year sent to homeowners. |
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January NHG responds to all service charge budget estimate queries from homeowners. |
February |
March End of service charge year. Letter sent to homeowners with new service charge (final costs). |
April New service charge budget comes into effect from 1 April, which homeowners pay in monthly increments. Audit of final (actual) costs for the previous financial year begins. |
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May |
June |
July |
August |
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September Full and clear breakdown of the final (actual) service charge costs for the previous financial year (April-March) sent to homeowners, describing surplus or deficit. |
October NHG sends letter advising of Direct Debit amendments in event of deficit. |
November Deficits and surpluses for the previous financial year are added to resident accounts |
December Service charge draft estimate for the next financial year sent to homeowners. |
* There are a few exceptional cases where a homeowner's service charge year is not April to April.
How is my service charge estimated?
The amount of service charge you'll be asked to pay as a homeowner will be based on an estimate calculated by your property management officer (PMO) and sent to you in a service charge schedule.
This will take into account several variable factors, such as how much money was spent on the building in previous years, whether we expect certain costs to go up or down, and the anticipated costs of major works. Your PMO will use all the information available to them to produce an estimate that is as close to the final actual costs as possible.
Paying your part
You'll see a column of percentages on your statement. These represent the proportion of each overall cost that you're responsible for paying under the terms of your lease.
The proportion of service charge you pay can be based on the percentage of the building you occupy, or can be a 'fair proportion' of the charge based on the services you have access to. It will not be affected by the number of shares in the property that you own, as you'll still have access to the same services.
You'll be able to establish how this figure was calculated by looking at a copy of your lease, specifically the Particulars (section 1) next to the term ‘Specified Proportion’.
In many cases, your contribution will be defined as ‘A fair proportion of the service provision…’ which is based on the shared services and facilities you have access to. For example, your percentage may be significantly higher if you have access to an elevator, or if you have the right to use a parking space.
'Reserve' or 'cyclical' fund
You'll notice on your service charge statement that some money goes towards a 'reserve' or 'cyclical' fund. This is basically a savings account for your estate or building and the money is kept aside in case we need to carry out major repairs or maintenance. Although we try to be as accurate as we can with our estimates, a healthy reserve fund will reduce the risk of you receiving a large service charge bill out of the blue.
Other service charge questions
For more information on how service charges are calculated, please visit the LEASE website, which is a government-funded advisory service. You can also download a copy of the RICS Code of Practice, which sets out industrial best practice, upon which we model our conduct.
If more money was collected from you during the charge period (based on that year's estimate) than was required as shown in the final (actual) end of year accounts, this will appear as a credit on your account within two months. This can then be refunded to you, if you prefer, although we will be unable to do so if your account is in arrears. You can check the status of your account online via My Account.
If the amount collected from you based on our estimate was not enough to cover the actual costs incurred during the year, the difference will be billed to your customer account as a deficit. Depending on the size of this deficit, it may be possible to arrange a payment plan so that the repayment costs can be spread over several months.
You should discuss this with your PMO directly.
You'll notice on your service charge estimate that some money goes towards a 'reserve' fund, also known as a ‘sinking’ or cyclical’ fund. This is basically a savings account for your estate or building and the money is kept aside in case we need to carry out major repairs or maintenance.
The amount you pay toward this fund is determined by the expected cost of necessary work divided by the number of years between when these works are carried out. A healthy reserve fund will reduce the risk of you receiving a large service charge bill out of the blue.
Estimating reserve fund contribution
We conduct regular surveys and inspections to your building in order to accurately calculate any expenditure that is likely to be necessary. Your PMO will carefully consider the information gathered at this stage to decide upon a Reserve Fund contribution that is robust enough to insulate you as a homeowner against excessively high one-off costs, without putting undue financial pressure on you. This will also ensure that the long-term costs of maintaining your building are spread as evenly as possible across several years and all occupants, as opposed to just those who occupy it when works become necessary.
However, there may be occasions where the costs of major works exceed the balance of your building’s fund. In these cases, the additional cost will be charged to you following the publication of the service charge accounts for the year in which we received the bill for the works in question.
We'll give you as much notice as possible if this is likely to happen so that you have the chance to make the necessary arrangements.
If you've purchased your home as part of the Shared Ownership scheme, and do not own 100% of the shares in your property, you're still required to pay 100% of the service charge. This is because you will still benefit from the same services you would receive if you owned 100% of your home.
It's sometimes necessary to carry out major works to your building, or enter a new long-term agreement to make sure we can fulfil all our obligations in your lease (such as a new contract for cleaning and gardening).
Consultation or dispensation is required if works will cost any homeowner £250 or more, or if the agreement will last longer than 12 months and cost any homeowner more than £100 per year.
The first stage of our consultation is a ‘Notice of Intention’, which we'll send to you by post and will give you a brief outline of the works that need doing, why the works are necessary, and whether you can nominate an alternative contractor to carry out the works. You'll have 30 days from when you receive the notice to provide feedback.
The second stage of our consultation is a ‘Notice of Estimates’, which will include estimates for the work from at least two contractors, as well as a summary of any comments we have received from homeowners in response to the last notice. You'll have a further 30 days to respond to this notice.
The third stage of our consultation is the ‘Notice of Reasons’ and is not always necessary. You should only receive one if we have not chosen the cheapest contractor, or if we have been unable to take on a contractor suggested by a homeowner. This notice will fully explain why.
As per the terms of the applicable legislation, the above notices must be sent by post, so please ensure you inform us if your correspondence address changes.
Administration fees
As a landlord, we recover administration fees for additional services where we are entitled to do so. This can include costs incurred for the grant of approvals under a lease, the provision of information or documents, costs arising from non-payment or costs arising in connection with a breach of a lease. Please see our administration charges document accompanied by the summary of tenant’s rights and obligations.
More questions?
If you have concerns about the service you're receiving in your building or estate, you should contact yur PMO via My Account. However, you must continue to make your monthly service charge payments. You can make a payment through your online account or by Direct Debit.