Service charges and ground rent explained

If you buy a leasehold or new-build property, you may find that you’re liable for service charges and ground rent. But what are these? And, more importantly, how much are they? Here’s our guide to everything you need to know about both.

If you buy a leasehold or new-build property, you may find that you’re liable for service charges and ground rent. But what are these? And, more importantly, how much are they? Here’s our guide to everything you need to know about both.

Mark Gordon
From the Mortgages team
4
minute read
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Posted 25 AUGUST 2021

What is a service charge?  

A service charge is a fee – usually paid yearly – that leaseholders have to pay their landlord to cover things like communal repairs and maintenance. When working out the service charge, your landlord will usually estimate how much these costs are going to be, and then split this amount between the number of flats in the building.

How much are service charges?

How much you pay for your service charge will depend on where you live and the type of property it is. But, generally speaking, the more impressive your building’s facilities, the higher your service charge will be.

Landscaped gardens, lifts and concierges might all sound nice, but they cost a lot, so flats with these amenities will usually sting you with hefty service fees. But even more modest buildings have common parts that need maintaining, so your annual service charge will go towards making sure these costs are covered.

What’s the average service charge for flats?

Again, this very much depends on where you live. The average hovers around the £2,000 mark, but you may pay more for a new-build.

But fees can be much, much higher than that, particularly in fancy apartment buildings with swimming pools, tennis courts and the like. And there are stories of leaseholders in London apartment blocks being charged thousands of pounds for things like security and Christmas decorations.

What does my service charge cover?

There are a number of things your service charge should cover, like:

  • buildings insurance
  • repairs to the roof, walls, or communal areas
  • heating, cleaning and lighting communal areas
  • wages of any staff working in the building, e.g. caretaker, gardener, management fees.

Who pays service charges – the landlord or tenant?

If you rent your flat, your landlord is responsible for things like buildings insurance and service charges. This isn’t something you have to worry about as a tenant.

Do I have to pay my service charge?

If you don’t pay your service charge, your landlord is within their rights to take you to court for the money.

What is ground rent?

You may have heard the term ground rent without understanding its meaning. Ground rent is an annual charge that leaseholders must pay their landlord, under the terms of the lease.

How much is ground rent?

Again, the amount of ground rent you pay will vary, depending on the property. In many cases, ground rent is a nominal or ‘peppercorn’ sum that needn’t overly worry you.

However, some leaseholders have been caught in the recent scandal surrounding the doubling of ground rents. This is where the ground rent starts at a reasonable figure – say, £250 per year – but doubles every 10 years. In this situation, it doesn’t take long before leaseholders are facing enormous annual bills.

What do I need to understand about service charges?

There are a few things worth knowing about your service charge:

  • If you feel that your landlord is overcharging you, you should consult the Leasehold Advisory Service in the first instance. If you want to take it further, you could take your landlord to the First-Tier Tribunal, which deals with property disputes.
  • You’ll probably be expected to contribute towards a ‘sinking fund’. This is a pot of money put aside to cover any major costs, such as repainting the building or replacing the windows. It means you won’t be landed with a huge bill when the works are done. However, you may not be able to reclaim the money if you sell up.

Frequently asked question

What do I need to understand about ground rent?

Here’s some advice about ground rent:

  • Read your lease closely. Is the ground rent fixed, or will it increase over time? And if so, how much is it likely to rise? It’s your conveyancing solicitor’s responsibility to make you aware of information like this.
  • That means if you found yourself embroiled in the doubling ground-rent scandal, you may have grounds to sue the solicitors who handled your house sale.
  • You don’t have to pay ground rent unless your landlord sends a formal request for it in writing.
  • Your landlord can demand ground rent going back six years.
  • Your ground rent can only increase if you agree to it, or if the lease allows it.
  • With any luck, the law will be changing. The government has proposed measures that will see leaseholders able to extend their lease by up to 990 years, while ground rent will fall to zero.

Will service charges or ground rent affect my ability to get a mortgage?

The scandal surrounding doubling ground rents led to some leaseholders being unable to get a mortgage. However, most ground rents should not affect a property’s mortgageability (the ease of getting a mortgage).

You only need to worry if there’s something in the lease that allows the ground rent to increase disproportionately. And mortgage lenders don’t tend to like it if the ground rent is more than 0.1% of the property value. 

How is ground rent calculated in the UK?

Ground rent is usually only a nominal amount, say £50 to £100 per year. However, in some cases it may be calculated on the value of the property. As above, alarm bells should ring if the ground rent is more than 0.1% of the property value.

What happens if ground rent is not collected?

You don’t have to pay ground rent unless your landlord formally demands it from you. And if your landlord forgets to charge you, they can only reclaim money going back six years.

Is council tax a service charge?

Council tax isn’t usually included as part Relatof your service charge. Generally, this is something you’ll have to pay separately.

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