Transparency is always important when the challenges associated with real estate management. This strategy will help protect owners and tenants. A current example can be seen in the declarations commonly known as service charge accounts. Let’s take a closer look at these documents and what type of information they contain.
What is a service charge account?
It is wise to provide a brief definition before moving on to discuss the finest points. Service charging accounting Implies the process of creating a declaration which provides detailed ventilation of any expenditure linked to real estate service costs. So what are the service costs?
Real estate service costs are paid by owners and / or managers. They are associated with the costs associated with current maintenance responsibilities. The main intention is to provide an additional level of responsibility in terms of spending money, the quantity of tenants necessary to pay and where the funds themselves are directed. Note that the tenants and owners both have access to these service costs.
What expenses are included in service costs?
It should first be noted that the exact types of service fees may vary depending on the property in question. For example, an autonomous house can be associated with different expenses compared to a block of rental apartments. However, here are some typical examples (1):
- Cleaning of common areas
- Maintenance of goods
- Landscaping
- Lighting on site
- Security (such as bidirectional videophones) or locking upgrades
- Ensure safety of elevators
- Inspections
- Management fees
All these elements will be detailed in a service charge account so that the expenses are completely clear.
Who is obliged to prepare a service expense account?
The owners and managers are mainly responsible for the preparation of these accounts. However, there are also moments when the documentation of service costs can be outsourced to a third party. This is preferable for those who are concerned with obtaining a fully objective point of view, and third -party accounts offer an additional level of objectivity. Service costs accounts can be prepared quarterly, every six months or every year. It depends on the property itself and on any local regulations that may exist.
Are the tenants required to pay the costs found in a service expense account?
The costs stipulated in a service costs account will normally be paid by tenants (or tenants). However, it is important to note that these are not hidden costs. They are generally described in an existing rental or rental contract. If the costs are not clarified, it is the right of the tenant to request the appropriate documentation. The exact payment plan can also vary. There may be times when service costs are automatically included in a monthly declaration in part of the rent. Other plans may force the tenant to pay a single sum when the service fees are produced (as at the end of the financial year). Note that in most cases, all tenants living in a specific property (such as an apartments complex) will be forced to pay the same costs. In other words, the charges are also broken between each tenant.
How are the costs of service costs calculated?
The majority of service fees accounts represent estimates of costs associated with the following payment period (such as quarterly declarations or every 12 months). This stems from the fact that it is not possible to predict precisely which expenses can occur in the near future.
Thus, a service charge account represents in place a summary of the expected expenses (2). Tenants have the right to request a ventilation of these expenses if they consider that they are overcharged. They are also not forced to pay more than what was initially described in their rental agreement.
The concept of “reasonable” charges
Given the information highlighted above, some readers may rightly be curious to know which charges are considered reasonable. This is an important question, and the best way is to examine the details of the rental agreement. As mentioned above, they should contain a summary of all service costs and explain the tenant’s responsibilities.
What happens if a certain charge seems foreign or otherwise superfluous? In this case, it is wise to request third -party advice. These experts will be able to determine whether the costs associated with a specific service are legally transparent, as well as if the rental holder is overcharged.
What is the difference between a service charge account and an expense account?
This is an important question, because these two terms are often confused with each other. Here is a quick ventilation of the main difference (3):
- Service costs accounts are intended to follow the funds paid by tenants for services provided by a management company.
- Expenditure accounts are designed to summarize the expenses incurred by the management company providing ownership services (such as maintenance, upgrading of public services and insurance policies).
Although both are associated with common real estate services, each serves their own objective in terms of responsibility.
Can service costs accounts apply to commercial properties?
Although service costs are often discussed in terms of residential locations, there are times when they can also apply to commercial locations. Of course, the services themselves are likely to postpone. The examples include (without limiting it) to collect waste, third -party cleaning services, parking maintenance and safety personnel after working hours. In one of these cases, it is the owner’s responsibility to clarify all the charges with the holder.
Will service fees increase over time?
Similar to other expenses, service costs accounts may increase. It depends on variables such as the costs billed by all third -party maintenance companies, rental prices, energy costs and wider concerns (including inflation or interest rate increases).
However, note that leases associated with fixed service costs accounts will not be required to pay more than what has been initially stipulated in the agreement (a percentage or predetermined costs). In the event of cost increases, they will be adjusted when the lease is renewed. As always, it is important to ensure that these terms and conditions are completely clear to avoid any confusion.
Can service fees differ in a single block of apartments?
There may be cases where rental of larger apartments may be forced to pay higher service fees. In other situations, all tenants in a single building are simply provided with stable service costs (such as five percent of their total monthly rent).
Please keep in mind that it was just a basic overview of service charge accounts and their underlying mechanics. If you have additional questions, take the time to speak with your owner or a real estate management company. This is the best way to guarantee that nothing is left to chance.
Sources:
- https://www.onehousting.co.uk/resident-services/resident-information/information-for-reders/your-service-carges-explated
- https://www.lease-advice.org/faq/how-should-my-service-change-be-calculed/3
- https://www.ukpropertyaccountants.co.uk/service-change-accouts-vs-expense-couts–the-diffefree/