One of the most common queries we receive from property owners is to clarify what is included in their annual service charge.
What are service charges?
Service charges are the annual fees that property owners pay for services provided to the development by the Owner’s Management Company (OMC). The OMC is legally obligated to oversee the maintenance and management of the common areas of the development. Many OMC’s will engage a Licensed Property Service Provider (e.g.: a Property Managing Agent such as Petra) to manage these services on their behalf.
What is an Owner’s Management Company?
The Owner’s Management Company is a legally constituted management company, registered in the Companies office. All owners are Members of the Management Company and contribute funds (via service charges) to the upkeep of the development. Members also have the right to attend the Annual General Meeting of the development to vote on the annual budget and other resolutions (e.g.: changes to the development’s Code of Conduct).
How are service charges calculated?
The service charges payable by property owners is always apportioned as per their Lease Agreement. They are typically billed on an annual basis, but in some cases the billing period may differ.
Who determines the level of service charge?
Service charges are set by the Board of Directors of the OMC in conjunction with the assistance and expertise of the managing agent. They are then discussed and agreed by the members (owners) at the AGM/Budget Meeting. Draft budgets are circulated in advance of this meeting to all members.
Prior to the completion of any OMC’s budget, a thorough analysis of all expenditure is carried out and three quotations for each service contract are requested from reputable firms. This ensures that the value for money enjoyed by property owners is maximised.
Am I legally obligated to pay service charges?
Yes, service charges are not an optional payment and is a legal requirement as per your lease agreement with the management company.
Not paying your service charge may leave you open to legal action. Additionally, the OMC can apply interest/administration charges on overdue accounts as per the terms of the Lease. This may result in long-term consequences on your credit rating.
When do service charges come due?
Generally, service charges are due by return as many costs in the budget may need to be paid in advance at year commencement (e.g.: insurance) In some cases, your lease agreement will specify that service charges are issued in more than one moiety (e.g.: bi-annually). Petra has examined each development’s lease and your payment date will be clearly indicated on the service charge statement.
However, many owner’s management companies appreciate that due to economic circumstances owners may in certain circumstances be permitted to pay by Direct Debit installments. Please contact our office for further information.
How can I pay my service charge?
Petra accepts payment by online banking, bank transfer, cheque, standing order or direct debit. Please quote the property reference number on your statement when making a payment. Payments made in error to Petra Management Ltd. instead of the OMC may be returned for re-issue.
What items are included in my Service Charge?
The first port of call for understanding your service charge bill is to review the accompanying budget.
The budget gives an itemised breakdown of what is included in your service charge. It is drafted after a competitive tendering process where Petra Management requests three quotes for all major services. It is then finally modified and agreed by the directors of the OMC prior to circulation to all owners for final agreement/approval at an OMC’s budget meeting.
The composition of the budget can vary significantly from development to development as the facilities and services required can very. Some of the most significant items include:
Managing Agent Fee: Typically an owner’s management company will engage a managing agent to manage the development. The responsibilities of the managing agent include (but are not limited to):
– Assisting owners with queries, – Common area property maintenance
– Contractor management – Insurance claim management
– Financial management – Service charge collection
– Administration – Legal issues.
Petra offer a comprehensive service in this regard and our list of services can be found here. Some ancillary services are billed separately, such as 24-Hour emergency service and postage and stationary disbursements.
Insurance: Since owners do not own the common areas (e.g.: external structure of an apartment block, internal common areas, roofs, grass areas, footpaths, car parks, etc.) , the Owner’s Management Company must have these areas insured. This cover provides for property damage to the buildings (all risks), loss of rent/alternative accommodation, public liability, malicious damage, fires, water leaks and employer liability in situations where a Janitor or caretaker is employed. The block policy does not cover the contents of individual property owners.
Electricity: Electricity covers the cost of all common area lighting and equipment. This includes (but is not limited to): lights in stairwells, lights in car parks, street lighting, gates, intercom systems, lifts, pump systems and emergency generators.
Common Area Cleaning and Landscaping: The Owner’s Management Company engages specialised contractors to maintain the internal and external common areas. These contracts are awarded on an annual basis following a tendering process.
Fire Systems: covers the maintenance of fire alarms, emergency lighting, automatic opening vents, dry-risers and fire extinguishers. These items are given high priority and must be maintained in line with regulations.
Repairs and Maintenance: The management company is responsible for all general repairs and maintenance related to maintaining the common areas of the development, i.e.: replacing broken doors, drain clearing, common area leaks and vandalism or misuse. All contractors are pre-approved to carry out works by the Managing Agent and hold the appropriate insurance and health & safety statements.
Maintenance of Property Plant and Equipment: This includes the maintenance of lifts, auto/pedestrian gates, ventilation systems, generators, water pumps, water tanks and all other common plant and equipment which is shared by property owners.
Annual Financial Audit: The Owner’s Management Company is required to hire an audit firm each year to examine the accounts and prepare audited financial statements for submission to the Companies Registration Office.
Contribution to Sinking Fund: Since the introduction of the Multi-Unit Development Act in 2011, property owners are required to make an annual contribution to a Sinking/Reserve Fund. These funds are ring-fenced and accumulated over a number of years, so that funds are available for non reoccurring items: major refurbishment projects (i.e.: roof replacement) or in the case of an emergency. By having sufficient funds assigned to this reserve fund annually, it is less likely that there will be a cash-call on owners or suffer an increase in service charges.