Social Homebuy 12

1 SERVICE CHARGES

1.1 Where RSLs are selling flats and maisonettes on a leasehold basis it will  continue to be responsible for the repair and maintenance of the building and  the provision of services such as lighting in communal areas. RSLs will  need to apportion these costs to the individual unit and recover the costs from  the leaseholders by way of the service charges.
 
1.2 It is a mandatory requirement of the Housing Corporation that RSLs set up and  maintain sinking funds for the provision of funds for the long term  upkeep of  flats. It may also be appropriate, in some instances, to levy an estate rent  charge  for houses on estates with communal facilities. However, the  contribution to a sinking fund for freeholders is a contractual obligation, as a  condition of conveyance, rather than a statutory one.  RSLs will need to consider the most appropriate mechanism for the recovery of this monies  bearing in mind the client group involved. 

1.3 Although SHB is not subject to the statutory provisions of the Right to  Buy/RTA,  RSLs are required to give leaseholders similar protection as Right  to Buy/ Right to Acquire purchasers with regard to service charge and  improvement contribution estimates. Provisions concerning service charge  estimates and sinking fund contributions must be set out in the lease.

1.4 RSLs must advise prospective purchasers of flats, either outright or on  shared ownership terms, of the anticipated average annual amounts (at current  prices) for the next five years or the end of the fifth  accounting year as their   improvement contributions for the improvement works to be carried out in the  five years following the initial sale of the property.  RSLs are however, able  to add an inflation allowance to the original costs The revised figure can  then be compared with the lowest tender and the lower figure actually charged  to the leaseholder. The information to include:

• Works  Description
• Total Estimated Cost
• Purchasers’ contribution.

1.5  Every effort must be made to provide realistic and accurate estimates of these  costs and the required contributions. As far as possible RSLs are required to keep the costs incurred and to be recovered within the five years within the  charges notified to the purchaser during the initial sales process.RSLs must  also ensure that the purchasers are made aware of any structural defects that  they know about and the potential financial implications of remedying them,  in advance of the purchase.

1.6 Whilst  RSLs are expected to limit the recoverable improvement contributions   to the sums indicated at initial sale, there are no such restrictions on the day to   day running costs such as caretaking, cleaning, and gardening. However, the   costs of these works and services have to be carried out to a reasonable    standard and at a reasonable cost.  RSLs should aim to limit the increases to   the annual service charge for repairs in line with inflation during the first five   years of the lease.

1.7 In summary, landlords are required to provide accurate estimates of service charges for tenants wishing to purchase. In respect of anticipated major repairs and improvements RSLs selling flats under SHB are expected to look to only recover the costs indicated in the estimates for the first five years of the lease. RSLs must also inform applicants of any known structural defects affecting the building and ensure that if they are to be repaired in the first five years they are included in the service charge estimates for repairs. Estimates of other service charges, apart from repairs and improvements, such as amounts to be charged for caretaking or communal lighting, must also be provided but can be recovered each year at cost.

1.8 RSLs may wish to seek their own legal advice on deciding the various elements making up the service charge.