As Managing Agents are all too aware, maintaining a consistent and predictable service charge cash flow is vital for effective and efficient property management. This is why it’s crucial that service charge demands are issued correctly, as it is a frequent reason given by leaseholders for non-payment.
In this article our Head of Debt Services, Helen Carey, provides her top tips for ensuring service charge demands are correct:
1. Read and understand the lease
As with the majority of our advice, the first tip is to ensure that you fully understand the lease, as it will detail how the service charge should be demanded. The lease will usually include the dates of the service charge period, how often payments should be made and may have further details such as stating demands need to be made by first class post or recorded delivery.
2. Put the service charge demand in writing
Under Section 47 and 48 of the Landlord and Tenant Act 1987, service charge demands must be put in writing. In England and Wales, the demand must include the name and address for the landlord where notices may be served on them by the tenant.
3. Include the Summary of Rights and Obligations for service charge and administration charges
The Summary of Rights and Obligations must be included within every service charge demand, and the document must be legibly printed, with a minimum font size of 10 pts. Additionally, in Wales, the Summary of Rights and Obligations must be included in both Welsh and English.
Failure to do the above enables a leaseholder to lawfully withhold payment.
4. Serve the demand within 18 months
Under Section 20B of the Landlord and Tenant Act 1985, service charge demands must be made within 18 months of the relevant cost being incurred. If they aren’t the costs won’t be recoverable through the service charge, unless you have sent leaseholders a notice within the 18 months explaining the costs incurred, and that leaseholders will be required to contribute towards them.
5. Be proactive
As previously stated, maintaining a consistent and predictable cash flow can make managing a property a great deal easier. However, to give yourself the best possible chance of being in this position, we recommend that you issue service charge demands 21 days before payment is due. A reminder should then be sent to any slow payers 14 to 21 days after the payment due date, which should also include details of any penalties that may be incurred for further delays in payment.
6. Take time to ensure demands are reaching leaseholders
The most common reason for a service charge demand not being paid, is quite simply because it hasn’t reached the leaseholder. Having a system in place to keep track of leaseholder contact details, especially if you manage blocks with buy-to-let properties, can significantly reduce the chance of this happening.
Whilst unfortunately the tips above don’t guarantee your leaseholders paying on time every time, they will help you ensure your service charge demands are enforceable and give you the best possible chance of maintaining a steady cash flow.