Leaseholders and landlords soon grumble if high standards of property management aren’t maintained. But how do you tackle service charge arrears and the associated cash-flow problems that slow payers can bring?
The first step is to understand WHY leaseholders aren’t paying – and then work out how to best tackle them. We bring to you the most common reasons, in reverse order, that we hear for non-payment, together with some tips on how to prevent them.
6. I can’t afford to pay
Top of the ‘can’t pay’ list, and it’s a tough one. You can offer payment by instalments – but make sure you get any agreement in writing, and be wary of building up further arrears with leaseholders that are already struggling to meet their financial commitments. An option that Bradys’ service charge recovery team uses with success is to contact the leaseholder’s lender for authority to pay.
5. Service charge is too high
As supported by our Freedom of Information request findings, a common grumble among the ‘won’t pay’ bunch concerns the perceived ‘reasonableness’ of the service charge. To ensure you are ‘reasonableness-proof’, keep detailed records of decisions and expenditure, and be open and transparent in your leaseholder communications. When dealing with a reasonableness claim, the court will be interested in how you made your decision to appoint Contractor A over Contractor B and will not necessarily equate cheapest with best.
4. Service charge not in accordance with the lease
Your lease will set out the who, when, what, where and how you should be making your service charge demands. Get it wrong and there will be a savvy leaseholder ready to use it as a defence for non-payment! Read your leases and make sure your team understand them. Check too that your leases carry a cost clause to enable recovery of administration and legal costs.
3. Demand is incorrect
Like no.4 above, this is hardly rocket science folks! Ensure you include the correct Summary of Rights document, send the demand to the right address, include on the demand the address of the landlord (making sure it is in England or Wales), and don’t fall foul of the 18 month rule.
2. Unhappy with the service provided
Right near the top of the ‘won’t pay’ list, there’s a lot you can do to minimise arrears in this area by simply communicating with your leaseholders. Agree, monitor and maintain service standards. Give leaseholders the chance to report problems as soon as they occur – and demonstrate action to remedy the problems.
1. Demand not received
I told you I’d moved… I didn’t receive it… You sent it to the wrong address…
Overall, the most common reason for a leaseholder not paying their service charge comes down to them not receiving the demand in the first place. You can tackle this by making sure your systems are foot-perfect. Capture and record changes of address and consider other channels such as email. Evidence of good housekeeping will always help you at Court.
Find out more
For help with recovering service charge arrears on your estates please contact Bradys’ specialist service charge recovery team on 0115 985 3450 or by email.
You can also view our free Service Charge Best Practice webinar recorded with News on the Block.