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Who pays service charge, a landlord or tenant?

by | Feb 7, 2023

Home $ Property Management for landlords $ Rent from Private Landlords Not Agents $ Who pays service charge, a landlord or tenant?

Service charges can get expensive so it is understandable if you question if it is the responsibility of yours if you are a tenant. Landlords getting away with being able to charge a tenant for these services seems unfair.

In this article, we will be discussing the topic in detail to work out who pays service charges as in the worst of cases it could result in fines and breaches of tenancy agreements where the wrong party pays.

So, from who is responsible for paying in general and what kind of expenses are covered when you do, this article walks you through it. Pay attention and do not be afraid to raise a dispute if you need to. 

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Is it the landlord or the tenant who pays the service charge?

Most of the time, it is the tenant’s responsibility to pay the service charges if they have signed the tenancy agreement that states there are service charges in the property.

However, a landlord should organise the charges and ensure they aren’t overcharging a tenant or there could be legal ramifications as a result.

service charges in a property

What do service charges cover?

Whenever service charges are charged, the funds are pooled together and are allocated to cover the ongoing operational expenses of a property.

This may encompass various costs such as building insurance, upkeep and repairs, landscaping, communal amenities, and potential staffing needs. Depending on the type of building you’re in, the exact reason for the funds varies.

It is also not guaranteed that even if your building has a particular service the cost isn’t being covered by the landlord through service charges. The exact allocation of finance varies depending on how the property is managed.

However, if you’re wondering what type of services are being covered in the property then checking the tenancy agreement that you have signed is a good idea.

It could be the case that there is a misunderstanding between what is actually being paid for. For instance, a tenant could pay for the upkeep and cleaning of a property through their service charges but still have to pay for professional cleaning when their tenancy ends.

Likewise, just because there are service charges being paid in a property and shared areas of a property that aren’t exclusively owned by a tenant, this also doesn’t give a landlord the right to breach their privacy.

A landlord must make sure they have the right to enter a property and should be punished if they enter a premises without the tenant’s permission

Is it necessary to pay a property service charge?

Incorporating a service charge in the freehold or tenancy agreement creates a legal obligation to make the payment once a tenant signs an agreement.

Nevertheless, if you find the level of service that is being provided directly by a landlord or professionals working on behalf of the landlord unsatisfactory then there are always avenues to contest these charges.

There are also legal practices in place to prevent a tenant from being discriminated against if they do complain. For example, a landlord cannot raise their rent as a result or give an unfair landlord reference for raising a reasonable complaint.

Another reason for contesting the charges being made to you as a tenant is if the landlord has unreasonably inflated the service charge. However, apart from these options, if the contract specifies a service charge, it should be anticipated that it must be paid.

Consider joining a landlord association to ask questions and get familiar with the costs that a landlord should charge a tenant that is reasonable before making a complaint like this or better yet ask your landlord directly.

Table showing if a landlord or tenant is responsible for paying fees

Before you take the below table too literally, understand that this is a general guide of what is allowed in a property or not and you should always check a tenancy agreement first in order to get your answer.

Just like some landlords may allow pets in a property some don’t, it is a personal choice as to whether a landlord will raise the rent to cover the costs they have or charge a tenant separately.

It is also common for private landlords without previous experience to rely on those who are operating without any letting agents or property management to help them to structure their tenancy agreement differently.

However, all in all, here is a general guide:

Landlord Tenants
Letting Fee Rental Payments
Management Fee Deposit Against Dilapidations
Inventory Creation Electricity & Gas Bills
Ground Rents Council Tax & Water Rates
Service Charges TV License
Annual Safety Checks Contents Insurance
Initial Telephone Installation Fee Telephone and Satellite Charges
Maintenance & Repairs
Inventory Check-out

Are maintenance fees the responsibility of the landlord or tenant?

Maintenance fees are a specific type of service charge that a landlord charges a tenant and many renters have found themselves in the situation of wondering who should pay it.

Sometimes, a tenant may discover their ideal place to live and find somewhere that ticks all the boxes, fit a budget, and puts down the deposit only to discover that there are quite expensive maintenance fees on their agreement. 

Again, just like in the case of service charges in general, if a tenant signs the tenancy agreement and there is an agreement in the document to pay maintenance fees then it is the tenant’s responsibility.

Therefore, before finalising the deposit payment for your dream rental, it’s advisable to inquire if there are any additional charges or fees that may be charged alongside the rent. Especially if it is clear there are maintenance costs.

Look out for things like shared corridor space in a flat, communal garden space and perhaps things like private roads that aren’t registered or maintained by the government in order to get an idea.

For instance, if you’re renting an apartment in a building with a shared garden, one such fee may be the service charge for the maintenance cost of hiring a gardener every month to sweep leaves and trim hedges.

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What expenses do maintenance fees typically cover?

Maintenance costs may be hard to wrap your head around if you’ve never lived in or seen a shared building where multiple tenants all live in separate units and it is the landlord’s job to maintain the shared space.

In general, maintenance costs may cover: 

  • Roof maintenance and repair
  • Gutter cleaning and repair work
  • Painting touch-ups
  • Replacing worn-out appliances
  • Electrical system repairs
  • Fixing plumbing issues
  • Replacing light bulbs
  • Lawn maintenance

However, it is reasonable for a building that has specific costs associated with the property to perhaps charge more for these services.

For instance, if you’re living in a property where there is a shared swimming pool for instance, there would likely be a maintenance fee to clean the pool every so often as this can get expensive for landlords to maintain by themself.

A landlord paying service charge

What expenses do maintenance fees typically not cover?

There are some things that a landlord cannot charge a tenant legally and include it with service charge. However, unless you look at the accounting of a landlord, there isn’t a way to truly know where funds are allocated.

You just have to trust your landlord and go by a rough figure for what the cost of maintenance, insurance and general service charges should be. It is unlikely that a landlord will suddenly increase service charges as a result.

Either way, here are a lot of the things that typically are just landlord allowable expenses and tax write offs rather than costs a landlord should charge a tenant with.

Is it the landlord or tenant’s responsibility to pay for building insurance?

Building insurance is another expense that is expected to be covered by a landlord. The responsibility of arranging and funding building insurance lies with the landlord, although it is not a legal requirement for any property to have this form of insurance. 

However, it is strongly advised that property owners consider having buildings insurance so a landlord may have to raise the rental income of a property in order to raise enough money to afford it.

This is a decision a landlord must make as there is a chance they could lose all of the value they have in a property if they don’t have building insurance and something were to happen like a fire.

In fact, building insurance is so important that a mortgage provider will typically make sure there is some form of building insurance in place before they issue any finance for the property.

It is in the lender’s best interest to protect their investment too as well as the landlord’s and if a property burns to the ground and loses all of its value in an accident, this will cost both parties money.

Most of the time, building insurance may cover:

  • Structural damage
  • Accidental damage (some policies)
  • Theft and vandalism
  • Alternative accommodation

Building insurance is not to be confused with rent guarantee insurance which is a type of landlord insurance protecting landlords from serious rent arrears. However, this may still be favourable for a lender.

If there is rent guarantee insurance in place it increases the chance that a landlord will be able to meet their mortgage payments every month without falling into rent arrears even if a tenant hasn’t paid their rent. 

What duties does a building manager have?

The primary responsibility of a building manager or block manager is to oversee the day-to-day functioning of a group of properties, ensuring that they meet the needs of both the owners and tenants while maintaining safety and security. 

There are a variety of rules and regulations that have to be followed in order to become a building manager and the law in this area is quite complex. As a result, building managers typically get paid a fair bit and are specialists.

They usually work separately to property managers and work on behalf of a landlord as another professional who is a part of overseeing the entire operation of a block of flats and making sure the building is legally compliant.

This involves coordinating various aspects of property management, such as maintenance, housekeeping, security, and facilities management, while also ensuring compliance with regulatory standards. Building managers also have to have a good network and access to the right people in order to hire any contractors immediately if there is an emergency in a property.

As an example, if there is a leak in the roof of a block of flats or a building that has service charges, a building manager would be expected to solve these problems as soon as possible to keep tenants happy.

If they don’t, a landlord could end up losing tenants or perhaps gaining a bad reputation so a building manager’s job requires a lot of responsibility and the knowledge of how to keep both landlords and tenants happy.

landlrods discussing ervice charge

The specific tasks performed by property managers may vary based on the type, size, and characteristics of the buildings they manage. For instance, the duties of a property manager overseeing commercial properties may differ from those managing residential properties too.

Finally, a building manager is also required to manage the budget of a property and make sure that there is some level of reserve built up through service charge payments if there is a major repair that is required.

For example, if it becomes clear that a big tree in the area has to be cut down and the majority of tenants want this to go ahead, the building manager can use the fund from the reserve to complete this task.

Suddenly raising the service charges of a property in order to cover a cost like this will have a lot of resistance from tenants and is unprofessional as it shows a poor allocation of funds.

Wrapping things up

All in all, in the majority of cases, it is the tenant’s responsibility to pay the service charges for a property even though it is the landlord’s responsibility to make sure everything runs smoothly.

Also, a tenant should understand that it is up to them to be able to contest any unfair charges and make a complaint if there is a clear breach of a tenancy agreement.

FAQ

Why do tenants pay service charge?

Tenants pay service charge if they are a leaseholder in a property and they pay this service charge to the freeholder. Ground rents may also be a fee in this process

What is the 18 month service charge rule?

The 18 month service charge rule is a simple rule that states costs must be paid within 18 months after a service charged is incurred

Can landlords claim back service charge?

Landlords can usually claim back service charges from their tenants, but it must be outlined in the lease agreement so they cannot spring this on you

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andreas gerazis

Andreas Gerazis

Experienced landlord

Andreas is a certified landlord with extensive knowledge about the UK property market as he has been actively investing for half a decade. Founder of the first three-in-one property management software, Lofti Proptech, Andreas has a brilliant understanding of the details surrounding what it takes to grow and run a thriving property portfolio.