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Effective Management of Service Charge Arrears

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Darren Bagnall of Manage Your Block explains how to effectively manage your service charge arrears.

Effective service charge collection is crucial to the running of a block. Arrears are quickly felt by property managers and residents alike; through reduced levels of maintenance and a scale back on larger projects. This leads to disgruntled leaseholders, stressed property managers and, potentially, a drop in property value if the situation is crippling.

Here we’ll explain how to approach arrears with your leaseholders to keep cash flow moving and to ensure your carefully constructed budget and maintenance plan can be relied upon for the year ahead.

Ensuring a Compliant Demand Process

It’s in a Director’s best interest to exercise a zero-tolerance approach to arrears, but that means ensuring that demands are compliant in the first place.

A simple, straightforward procedure is all that’s needed to ensure you tick the required boxes:

1. Demands should be supplied in adherence to current standards which means including a summary of the leaseholder’s rights and obligations as well as displaying the landlord’s name and address. If these standards aren’t met, the leaseholder is under no obligation to pay.

2. If payment is not received on time, a polite reminder should be sent to the leaseholder immediately.

3. If payment is still not received, the leaseholder should be warned of the possibility of legal proceedings and a solicitor should be instructed.

Late Payment Administration Charges and Interest

During the process of serving service charge demands and reminder letters, RMCs should ensure that non-payers are charged ‘late payment administration charges’ where appropriate.

Legislation merely states that such charges should be ‘reasonable’ but you can look to your lease for guidance. Most leases allow for interest to be charged at a rate of 4% above base rate.

Leaseholder Challenges

It’s important to note that the above advice is applicable to late payers only, not leaseholders who actually take issue with a demand and challenge them.

Leaseholders have the right to challenge any demand that they believe is unreasonable or non-compliant with the lease. If a complaint is received, the leaseholder is entitled to a written summary of costs incurred in the last accounting year (April to April) or, if there’s not one, the last 12 months leading to the date of their request. This must be provided within 6 months of the end of the last accounting period, or within one month of the request (whichever is later).

Within 6 months of this being provided, the leaseholder can then go on to request that the accounts and receipts (and any other supporting documents) be sent to them for inspection.

You must comply with the above time frames to avoid landing yourself in hot water and, in most instances, the above is enough to satisfy the needs of the leaseholder so that payment can be made. If not, the matter may go to First-Tier Tribunal but, if all is in order, this should swiftly result in payment being demanded of the leaseholder.

Recovering Legal Costs from Leaseholders

Most modern leases also allow for the recovery of solicitors’ costs from the leaseholder when instructing to chase arrears. With this in mind, RMC directors and managing agents can expect that all legal fees for undisputed cases are paid by the leaseholder – not the RMC. This makes sense as it ensures the legal costs are not absorbed into any subsequent service charge demand, therefore protecting the other leaseholders.

This means that that outsourcing arrears recovery to a solicitor may be preferable as a) they have the expertise, b) they have the time to dedicate to the matter and c) the costs are recoverable from the leaseholder at fault.

With this in mind, RMC directors and managing agents are able to adopt a zero-tolerance approach to the collection of arrears, safe in the knowledge that any disputes can be handled by a third party.

How Manage Your Block Can Help

The service charge function of Manage Your Block is just £49 per annum and allows you to send professional, compliant demands at the click of a button. It also enables you to track payments and keep a full service charge history for the block.

You can head to our simple instructional video to learn how to utilise the service charge function if preferred, but it’s as easy as this:

  • Log in, head to the Dashboard tab and click Edit Property
  • Complete the Management Company and Service Charge details section
  • Complete the bank details section with the account the charges should be paid into
  • Upload a personalised email signature and/or letterhead image if you have one for your RMC
  • Click Submit and head to the Service Charges tab
  • Click Add New Service Charge and select the leaseholders this demand should be sent to
  • Enter the term dates, amount and due date
  • Preview the emails and the invoices to make sure you’re happy and click Save to send
  • The leaseholders will then be listed for you, and you can click ‘Mark Paid’ on each of them as their payments come in before Archiving them to remove them from the list

The system is cloud-based, meaning all the information and functionality can be utilised by anyone, anywhere with a secure login. It’s specifically designed to be simple and user-friendly- we even collaborated with a group of directors and committee members during the design process to make sure it ticks the boxes you need without being overly complicated.

Manage Your Block aren’t here to tell you how to run your block of flats, but we can provide you with highly specialised software to make the management of your block much easier. Call us for more details on 0333 577 9070 or email info@manageyourblock.co.uk.