It’s that time of year again, many leaseholders and home owners have received their service charge budgets for the new year and in some cases, see higher bills than the previous year. In this day and age, with such high costs, the (almost!) million pound question is:- can you pay service charges monthly rather than annually?
What are the options?
We get lots of different questions and methods of service charge payment, and we’ll try to explain not only what we do and don’t accept, but industry standards as well as the legislation behind it:
Pay in full
The best method is to pay the service charge demand (invoice) as set out in your property lease / transfer agreement. This will usually be to pay the amount in full, whether in advance or in arrears and provides the manager (whether self-managed, managing agent or freeholder) with the funds to look after the development.
Payment plan
As a business, LovePM is happy to accept monthly payments by standing order, like many block and estate managing agents. We do not charge any fees for monthly payments but you should always check if your agent does have an administration fee for this arrangement as it will differ from firm to firm. While monthly payments are normally a concession compared to the ‘full payment in advance’ stipulation in most leases / transfer agreements, we generally refer to our client to confirm they are happy with monthly payments and check that it would negatively affect cashflow for your development. Some RMCs / RTMs / Freeholders may be happy to accept instalments but will insist that they are paid in advance rather than in arrears, to avoid cashflow problems.
Please remember to use the correct payment reference, and please let us know if you intend to pay in instalments so that we can confirm specific arrangements for your development.
What should I do if my management company doesn’t allow monthly payments?
We are aware that where monthly payments are not permitted, it can be a struggle for property owners to pay the bill in full, which is often for a full year of service charge. We always suggest that owners divide their current year’s bill by 12 and try to save that amount every month, perhaps putting it away in a separate bank account, ready for the new service charge demand in a years’ time.
Your service charge may increase from one year to the next, but you will have hopefully saved the majority of the bill over the course of the year which will ease the strain on your personal cash flow in the month the bill is due.
What about ground rent?
Ground rent has been phased out for newer properties, but for those that still have it, this again depends on your lease. In most cases it must be paid in full, in advance and there is less flexibility for payment plans.
Can I pay by card?
We are not currently able to accept card payments. While some agents do accept card payments, these are invariably for debit cards rather than credit cards – The Royal Institute of Chartered Surveyors (RICS) prohibits credit card payments due to the problems that can be caused by the credit element, whereby card holders can easily dispute a payment and it will be withdrawn from the seller by the card provider without notice. This can have a significant impact on cash flow and therefore bills that must be paid, and so agents should not accept credit card payments.
Is BACS best?
Bank transfers, or BACS, have become widely accepted as one of the quickest and easiest methods of payments. In most cases it is free to use, instant, and does not incur fees like card payments can. We will always include BACS details in our service charge demands (invoices) and encourage owners to use this where possible, for either annual, quarterly or monthly payments.
Could I pay by cheque?
We are happy to accept payments by cheques for all of our blocks and estates. Please post this to our office and be careful to ensure you write the correct payee for each account. Client accounts often have very specific requirements imposed by the bank, so be sure to write it exactly as stated on your invoice, and to include your payment reference on the back.
What if I can’t pay?
Service Charges and Rentcharges are often variable fees payable to a Residents Management Company, manager or Landlord (freeholder). These funds are used to pay the essential costs of running your development, including things like Property Owners insurance, communal electricity, gardening, cleaning and Health and Safety Compliance. If property owners do not make these payments, then the management company or Landlord will not have any money with which to pay for these services.
Many modern leases and transfer agreements therefore provide for charges to be paid in advance, in full, and give the manager or Landlord a direct route to recover unpaid charges quickly. The Law states that even if you disagree with the service charges raised, you should still pay them and separately raise your dispute; this also provides for the development to continue to run during ongoing disputes.
Any payment arrangement that does not strictly adhere to your lease or transfer is a concession. While this has come to be expected, it is worth remembering that if individuals do not make payments then the management company, RTM, managing agent or freeholder will most likely run out of funds, and either have to seek alternative funding (which incurs interest for all the owners) or stop services on site. We therefore recommend that anybody struggling to make payments contact the agent for their property, so that both parties can better understand each other’s position and requirements, and to find a practicable solution.
Costs are always rising and, with low credit rates recently, many people now prefer to make monthly payments for services rather than a full lump sum, especially if it is interest free. While very few leases or transfer agreements allow for this approach, in many cases it can easily be setup with a quick conversation with your managing agent, and it will be one less thing to worry about.
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