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Service charges Policy

1. Purpose

The purpose of this policy is to provide a framework for the legal, regulatory and operational management of service charges.  It also sets out the overarching values and ethos of Genesis with regards to Service Charges.

The principles we follow are:

  • Genesis to recover 100% of the costs of providing services through service charges and other charges paid by customers.
  • Service charges will be in compliance with all relevant legislation (currently the Landlord & Tenant Act 1985, (L&T Act 1985) and Commonhold and Leasehold Reform Act 2002).
  • Service charges will be set and managed in accordance with current best practice.
  • Existing secure tenants, who pay a Fair Rent, will be liable to pay a fixed or variable service charge set by the Rent Officer. 
  • Some forms of tenancy (commercial, supported, retirement) have varying requirements according to specific agreement and legislative acts and this policy confirms the application of the relevant standards and legislative requirements of individual acts wholly related to specific tenures and tenure types.
  • The services provided will be clearly identified to customers and set out in agreements (which include licences, tenancy agreements, leases and any other relevant documentation).
  • Estimated service charges are calculated with an understanding of previous costs incurred and a forecast methodology applied to account for any known charge increases or decreases.
  • Estimated service charges are not altered as a result of temporary breakdown or failure to provide a service.  The difference between estimated and actual costs will be identified in the financial year end service charge accounts. Any balances will be accounted for according to tenure type and as set out later in this policy.
  • The difference between estimated and actual costs will be identified in the financial year end service charge accounts.  Any balances will be accounted for according to tenure type and as set out later in this policy.

2.    Definitions

Service Charges - Section 18 (1) of the Landlord and Tenant Act 1985, as amended defines a variable service charge as an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management; and the whole or part of which varies or may vary according to the relevant costs

Examples of service charges may include:

  • Grounds maintenance
  • Cleaning, lighting & repairs for communal areas
  • Lift maintenance
  • Building funds for future major works
  • Management fee

3.    Standards

Genesis recognises that the determining factors in the administration of service charges are the terms of the tenancy or licence agreement for tenants of rented properties, the lease in the case of ownership and commercial customers, or the transfer document in the case of freeholders.

Genesis is committed to collecting service charges in a timely and cost-effective manner in order to recover its incurred costs.

Genesis strives to operate all its service charges in accordance with legislation and guidance issued by the Regulator.  Genesis will endeavour to maintain the highest of standards and reflect best practice within the industry.

Genesis recognises that customers may receive different types of services and as such have different liabilities for service charges.

Individual tenancy agreements, leases or transfer documents will give full detail of services that are chargeable to each customer.

Genesis service charges will be based on actual costs of providing each service or, where these are not available, for example on new developments, Genesis will provide estimated costs based on evidence from comparable estates or properties. We will prepare estimates annually and reconcile the actual costs and accounts each year.

Service charges will be apportioned between individual properties in accordance with the terms of the tenancy agreement, lease or transfer document. Genesis recognises the need for reasonable and fair apportionment of charges to customers and where none is prescribed will adopt a fair and reasonable approach to apportionment.

Genesis is committed to ensuring that all its customers who pay service charges have the opportunity for on-going involvement in deciding the type and extent of services subject to constitutional and legal requirements.

Disputed items should be notified to Genesis for investigation.

4.    Information, consultation and engagement

Genesis will consult and inform customers in line with statutory requirements as and when required in the specified processes. A notable process where consultation is required is when issuing a Section 20 for work to be completed.  Section 20 of the Landlord & Tenant Act 1985 will be adhered to.

Wherever possible, Genesis will involve customers in assessing value for money and will assist them in making informed judgements.

In the case of a request to inspect documentation, Genesis will make such information available for inspection or in the case of another provider holding such information Genesis will supply the name and address of the freeholder or superior landlord.

5.    New developments

Genesis will aim to control new development services and charges to create the lowest possible overall service charge by selecting facilities appropriate to the type of development. This will include some items requiring regular maintenance and those benefiting from a longer life cycle.

In the planning phase of new developments, those in Genesis responsible for new development will liaise with internal colleagues to provide the highest possible degree of accuracy in estimating service charges in order to assist potential homeowners with planning their own domestic budgets.

Contributions to sinking funds or usage charges for new developments will be set by estimating or calculating specific lifecycles and costs for applicable components.

In cases where Genesis is not the freeholder, Genesis will take all reasonable action to comply efficiently with requests for information from customers or secretaries of recognised Residents’ Associations.

Genesis will make a charge to cover our own reasonable costs of managing services as long as we are permitted to do so.

Sinking funds or depreciation / usage charges may be in place to cover the replacement or renewal of key facilities such as roofs, lifts or door entry systems.

6.    Statements and demands

An annual statement of account will be produced for each property where service charges are payable, unless the lease, tenancy agreement, licence or other tenancy / title document provides for more frequent accounts.  Where service charges are fixed then accounts will not be provided.

Genesis may seek agreement to standardise the frequency of accounts statements in order to control administrative costs.

Demands for service charges will be made in writing and will contain the landlord's name and address and a summary of rights and obligations as per Section 47 & 48 of the Landlord & Tenant Act 1987.

In addition to rights under the lease or transfer document, Genesis will, where appropriate and applicable:

  • Provide customers with an estimate of their service charge bill. This will include statements of anticipated expenditure for services to which the customer contributes.
  • Provide customers with a statement of actual service charge expenditure within six months of the year end or as the binding agreement states.
  • Offer payment options for service charges for the year – including direct debit.
  • Provide customers with an annual statement of major works / sinking funds charges.
  • Provide in house debt advice or provide information on/ signpost customers to an organisation that can provide debt advice for those finding payments difficult. 
  • Service charge accounts will be independently audited in accordance with statutory requirements.

7.    Surplus (credits) and Deficits (debits)

Any surplus or deficit on a customer's account for the financial year will be determined by the calculation of actual costs in comparison to estimated costs. These will be calculated by the end of September of the next financial year, i.e. costs incurred between April 2014 to March 2015, will be calculated by the end of September 2015.

If there is a matter that prevents Genesis from completing account calculations and finalising surplus and deficit balances, in accordance with best practice and legislation, Genesis will ensure customers are informed of potential costs as yet unaccounted for, through provision of a formal notice.

The treatment of surplus / deficits will depend on the requirements of the lease, tenancy agreement, licence or other tenancy / title document, which are contractually binding.

In the case of tenancies the standard form of agreement allows the balance to be carried forward to the next service charge year. 

In the case of most leases the obligation is to credit any surplus and debit any deficit after the close of the financial year. The customer's surplus / deficit balance and overarching account balance must be settled by the end of that financial year i.e. for the year 2014/15 when the surplus / deficit is determined in September 2015, the balance must be settled prior to the end of March 2016. 

All customers have rights allowing them to inspect and check accounts and supporting documents.  These rights are subject to time limits set down by law.

8.    Charging arrangements

Genesis operates six separate schedules of charges: these are:

  • Estate – if the property forms part of an estate, then certain services that are provided across the estate will be captured under this heading.
  • Block - if the property forms part of a block, then certain services that are provided across the block will be captured under this heading.
  • Unit – if the property receives services that are unique to the property and not directly connected to any other properties the charges will be captured under this heading
  • Insurance – this heading covers charges for buildings insurance
  • Sinking funds & Usage – dependent on any specifics in Lease or Tenancy Agreement, this will form charges for longer term replacement of major assets to the property, block or estate.
  • Management Fees – this heading covers the overhead costs incurred in managing the services we provide. The law requires that this charge is reasonable.

9.    Documents for customers

Genesis is committed to keeping its administrative costs as low as possible through efficiency and appropriate administration. As such, service charge statements and demands will only be sent to customers who pay variable service charges by separate demand. 

Where customers pay one all-inclusive charge (e.g. market rents, licensees) Genesis will not provide a separate service charge statement.

Genesis is committed to providing clear statements for all charges with commentary on how the charges are calculated and what services they represent. Customers will receive a covering letter determining the charge period and confirming content of:

  • A demand for payment (demand is a legal term and we wish to confirm that we use this term for legal purposes only)
  • A statement of expenditure; this will determine the overall sums spent on each schedule, your contribution in percentage and in financial terms

10.  Sinking funds and usage charge

A sinking fund is a collection of funds taken from leaseholders and freeholders over a set time period in order to replace/ redecorate/ improve a major asset when required. 

A usage charge is an amount of money paid by a tenant on set time periods e.g. monthly, weekly etc. that covers the eventual replacement of the major assets contained in the block.  These payments ensure that Genesis is able to replace, redecorate, or improve the asset when required.  Customers renting a Genesis property (e.g. general needs, care and support customers etc.) will pay a usage charge for these purposes where the monies are not automatically taken from rent revenues. 

Setting up a sinking fund/usage charge ensures that all customers, irrespective of when they live in the block/property, share the financial cost of major works and replacements.

The sinking fund/usage charge maintains the value of the assets and circumvents or offsets the need to pay large one-off sums when major works are required. 

Genesis will abide by all legal requirements when setting up, maintaining and using a sinking fund/usage charge.

If Genesis intends to use a sinking fund for any purpose we may be required to formally consult with the relevant leaseholders or freeholders about this.  This is covered in Section 20 in the Landlord and Tenant Act 1985 and in the Commonhold and Leasehold Reform Act 2002.

11.  Diversity and inclusion

A Diversity and Inclusion Assessment has been completed as part of this policy review and a copy is available on request. To request a copy please contact us at policy@genesisha.org.uk or for further information on our commitment to equality and diversity at Genesis please visit our website.

12.  Related internal documents

  • Leasehold Management Policy
  • Income Collection Policies
  • Procurement Policy
  • Leasehold Handbook

13.  Legislation, regulation and guidance

The Landlord and Tenant Act 1985, as amended, sets out the basic ground rules for service charges, defining what is considered a service charge, and setting out requirements for reasonableness and for prior consultation.

14.  Further Reading

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