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What are Service Charges? A Guide for Homebuyers

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Buying a home is exciting, but when you’re looking for your new home there’s an important cost you need to be aware of. Especially for a leasehold property – service charges. So, let’s look at what service charges are and why they matter when budgeting to buy and run your future home.

What are service charges?

Service charges are fees paid by homeowners. Usually in a leasehold property, to cover the costs of maintaining shared parts of a building. Service charges typically include things like cleaning common areas, maintaining lifts, lighting, gardening, major repairs like roof replacements and insurance of the building and the cost of management. This is not an exhaustive list so be sure to check the property lease.

Charges are often managed by a property management company. Or the freeholder and ensure communal areas are well-maintained and in good shape.

What you need to know about service charges

Service charges are typically paid in advance either annually or bi-annually. But the property’s lease will outline the frequency and amount to be paid.

They need to be factored into your household budget, so here’s what you need to consider:

What the charges cover

As part of your property search due diligence, and ideally, before you make an offer, you should understand the charges and what they cover. Ask the agent selling the property what you’re paying for and the frequency of payment. If they don’t have the information, then they can find out for you.

Factor in long-term costs

Service charges continue throughout your ownership of the property, so think about how they’ll impact your overall annual budget.

Costs can fluctuate

The charges can vary from year to year, especially if more significant repairs are required, like a new roof for example. Unpredictability is never ideal so ask when the last time significant maintenance costs were incurred to gauge when these things may next be due. Also, ask how these things are managed and by whom.

Review historical charges

Ask the sales agent about previous service charges over the past years. If you see a steady increase year on year, this could be a sign of poor management or upcoming costly repairs.

Find Your Agent

Alongside your solicitor be sure to check all legal documentation that relates to the service charges and your obligations as a homeowner. Terms should be fair, transparent, and comply with the law.

Where can I get information about service charges?

Information on service charges is typically found in the lease agreement. Or can be obtained directly from the property management company or freeholder. Another source regarding service charges and other expenses can be found online on the GOV website. Your solicitor will help you understand this documentation during the conveyancing process.

Next steps

Service charges are important to understand when buying a home. Being aware of what they are and what they cover will facilitate efficient household budgeting and hopefully saving you from unexpected expenses down the line.

Investing in our own bricks and mortar is the biggest investment most of us make in our life. So, understanding all the costs involved, including ongoing running costs will help you move home with confidence.

It’s not just about purchase price; it’s about understanding the full picture of homeownership, ensuring that you’re well-prepared for the future.

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Last Updated: January 3rd, 2024

Phil Spencer

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