Many renters have experienced the excitement of finding a property, only to be met with an unexpected surprise: the service charge. For many tenants, it is not uncommon to find themselves scanning the rental agreement and seeing the term “service charge” next to the rent. But what exactly does it mean? And more importantly, who is responsible for paying it – the landlord or the tenant?
Service charges are a common feature in properties with shared spaces, such as flats or multi-unit buildings. Before they secure their new home, it is essential to understand what the service charge covers and who is expected to pay it.
A service charge is a fee that covers the costs of maintaining and managing a property, particularly communal areas, and shared facilities. This may include:
When it comes to who pays the service charge, the answer is not always straightforward. It ultimately depends on the landlord’s preferences and the terms of the tenancy agreement. In some cases, the landlord may choose to cover the cost of the service charge themselves, including it as part of the rent. However, in the majority of situations, tenants are required to pay the service charge directly, and sometimes it is included in their rent payments.
The exact responsibility for paying the service charge and how much it will be, should be clearly outlined in the tenancy agreement. If the tenant is responsible, they have the right to request a breakdown of the charges to make sure there is transparency and to avoid overpaying.
Ground rent is a regular payment made by a leaseholder to the freeholder (landowner) for the right to occupy and use the land on which their property is built. Although the leaseholder owns the property itself, they do not own the land beneath it, which remains the property of the freeholder. Ground rent is typically specified in the lease agreement and is paid annually or semi-annually. The Leasehold Reform (Ground Rent) Act 2022 caps ground rents on new leases and extensions at a 'peppercorn' rate. Read our ultimate landlord guide to leasehold reform for more information.
The key difference between service charge and ground rent lies in what they cover. Ground rent is a fee paid by a leaseholder to the freeholder for the use of the land, while a service charge covers the costs associated with maintaining and managing the communal areas and services within the property.
Sometimes the term "maintenance fee" is used interchangeably with "service charge," but they essentially refer to the same thing. Both terms relate to the upkeep of communal areas within the building. Whether it’s called a service charge or a maintenance fee, it relates to the upkeep of communal areas in the building. The tenancy agreement should specify who is responsible for paying the fee.
Tenants can challenge a service charge if they believe it is excessive or unfair, but simply refusing to pay without a valid reason can lead to legal consequences, including eviction. It's important that tenants have the opportunity to review the terms of the tenancy agreement and seek legal advice if they are concerned about the fairness of the service charge.
The amount of a service charge can vary significantly and largely depends on factors such as the size and location of the property, the type of services provided, and the condition of the building. For example, properties with luxury amenities such as a gym, swimming pool, or concierge services will generally have higher service charges compared to buildings with more basic facilities, such as shared hallways and basic maintenance.
When renting a flat, the service charge is typically paid by the tenant, though this can be included in the rent or specified separately in the lease agreement.
Service charges can be high due to factors like the size of the property, the number of tenants, and the type of services provided such as security, maintenance and insurance. Additional costs, such as major repairs or renovations, may also increase the service charge.
In most cases, tenants are required to pay the service charge in a rented flat. However, this depends on the terms set out in the tenancy agreement. In some cases, the landlord may cover this cost as part of the rent.
Service charges can be deducted as expenses from a landlord’s rental income when working out taxable rental profit, as long as they are wholly and exclusively for the purposes of renting out the property. Read our tax guide for landlords for more advice on what things landlords are allowed to claim as expenses.