Service Charge Policy

Part of the Trust’s Leasehold Framework. Doc Ref: HO-04-00. Level 1 policy approval - version 2 approved 25 November 2020


1.1 The purpose of this document is to present the general policy on service charges, setting out the aims, principles and values that will be followed by the Vale of Aylesbury Housing Trust (the Trust) in its operation of them.

1.2 Service charges are payable by assured tenants and by leaseholders. In the rest of this document assured tenants are referred to as ‘tenants’, and ‘leaseholders’ shall be taken to include residential, shared ownership and non-residential occupiers.

1.3 This policy has been written having regard to the Trust’s agreed vision and values and to reference material from Homes England and the Regulator of Social Housing, National Housing Federation (NHF) guidance, relevant legislation, leases and tenancy agreements, and industry-wide best practice. The policy is underpinned by operational procedures which have been formulated and developed in consultation with solicitors, tenants, leaseholders and staff as appropriate.

2. Statement of Intent

2.1 The Trust is committed to meeting its responsibilities to all residents under the terms of their tenancy agreements or leases and to providing them with value-for-money services in the management and maintenance of their homes and estates.

2.2 The Trust is bound by the terms of the tenancy agreements and leases issued either by it or by Aylesbury Vale District Council before stock transfer (in 2006) and by relevant legislation.

2.3 Service charge items are defined by the lease or tenancy agreement. If the lease or tenancy agreement does not provide that a charge for a particular service can be recovered by the Trust then the cost cannot form part of the service charge until there has been a formal variation of the tenancy or lease.

2.4 The Trust’s variable service charges are the recovery of costs which do not necessarily fluctuate in line with inflation or the rent formula, however the Trust will aim to obtain value for money at all times.

2.5 The Trust will seek to recover all reasonable service charges to which it is entitled.

3. Definition of Service Charges

3.1 Residential service charges can be either fixed or variable. The Trust operates variable service charges.

3.2 Service charges are costs payable directly or indirectly for services, repairs, maintenance, insurance or the Trust’s costs of management in respect of a dwelling where the amount of the charge varies in accordance with the costs incurred by the Trust and which are required to be paid by the tenancy agreement or in addition to the rent. The Trust will aim to set service charges at a level which covers the full cost of providing the required services and/or goods to the communal area.

4. Calculation and Recovery of Service Charges

4.1 Service charges to tenants will be made in accordance with the tenancy agreement and with relevant legislation.

4.2 Service charges to leaseholders will be made in accordance with the lease and with relevant legislation.

4.3 Where any apportionment of costs is undefined by the lease or by the tenancy agreement, the Trust will calculate the share to be paid based on reasonable assumptions. The exact benefit that each individual property derives from a global grounds maintenance contract, for example, is impossible to calculate and approximations have to be made.

4.4 In accordance with its tenancy agreements and leases the Trust will issue an estimated service charge for the financial year (1st April to 31st March) so that it is received at least 28 days before 1st April in each year. The estimated service charge will be based on existing cost data and on known cost projections for the year to come.

4.5 In accordance with its tenancy agreements and leases the Trust will issue a service charge statement in sufficient time for it to be received by service charge payers no later than the end of September following the end of the financial year. This will show actual costs incurred by the property and, prior to issue, the service charge statement will be independently audited.

4.6 In line with legislation and upon request, tenants and leaseholders will be entitled to see supporting evidence of the information contained in their service charge statement. This request must be made within six months from the date that the statement was issued. After that time, it is a matter for the Trust’s discretion. The Trust may deny this request after the expiry of the six month period if it considers the request to be frivolous or vexatious, or if it considers sufficient information has already been provided.

4.7 Credits or debits arising from the statement (i.e. the difference between the estimate and the statement for the same year) will, although due, be by default carried over to the financial year following the statement issue. If, after taking into account the current year’s estimated charges raised, there is still a credit, then the leaseholder or tenant will be offered a refund.

4.8 In accordance with legislation the Trust considers the charge to belong to the property, not to the tenant or leaseholder. Credits or debits arising from the service charge statement will be issued in accordance with the respective tenancy agreement or lease.

4.9 For tenants the Trust may, after consultation, introduce, modify or withdraw services and adjust the service charge accordingly.

4.10 For leaseholders the services provided and the accompanying service charge will be defined solely by the lease. Any deviation from this will require a Deed of Variation(s), the enactment of which is to be paid entirely by the requesting/requiring party.

4.11 Legislation generally requires service charges to be demanded within 18 months of the cost being incurred. The point at which a service cost is considered to have been incurred is the date on which the Trust made the associated payment or received the demand for which payment should be made, whichever comes first.

5. Major Works (Section 20)

5.1 The Trust will comply with the Landlord and Tenant Act 1985 (as amended) and the Commonhold and Leasehold Reform Act 2002, in consulting with individual leaseholders and/or tenants on any service charge costs which exceed certain prescribed amounts. This applies to Qualifying Works such as repairs and some improvements (‘Major Works’), or to contracts known as Qualifying Long Term Agreements, (‘QLTA’s’) which exceed 12 months.

5.2 Where a service charge item will be greater than a certain amount per dwelling (at the time of writing, £250 for a one-off cost or £100 for a contract of more than 12 months), the Trust will carry out the statutory (or ‘Section 20’) consultation procedures. The leaseholder and/or tenant is provided with a notice that the Trust intends to carry out works or enter into a contract and then given the estimated cost and a proposed contractor before the work is carried out. The leaseholder and/or tenant may comment on the Trust’s intentions and the proposed costs and the Trust will give due consideration to the comments received in line with its statutory obligation. In certain circumstances the leaseholders and tenants have the right to nominate a contractor or supplier from whom we are obliged to try and obtain a cost estimate. The consultation process takes a minimum of three months.

5.3 Major Works (S.20) costs to leaseholders, where statutory consultation has been carried out, will be billed separately from the annual service charge bills. QLTA costs however will be included in the annual service charge.

5.4 The Trust will begin to seek payment of all leasehold Major Works bills after one month of issue, to be settled within 12 months of issue.

5.5 Major Works costs to tenants (this will mostly be for QLTAs such as security contracts), where statutory consultation has been carried out, will be included in the annual service charge. They will not receive a separate bill.

5.6 Major Works bills will be issued to leaseholders as soon as the Trust is able to verify the costs with an acceptable audit trail, but no later than 18 months after the costs were incurred.

5.7 If it is not possible for an accurate Major Works bill to be issued within 18 months of the cost being incurred, service charge payers will be formally advised via a S.20B Notice and the bill will be issued as soon as possible after that.

6. New Developments

6.1 Leases in new developments are not bound by leases already in existence. The Trust will draft leases in new developments that allow the Trust to recover costs fairly according to the services enjoyed by individual leaseholders.

6.2 New developments will aim to be designed to make service charges affordable to leaseholders and tenants, and to provide the best value for money possible.

7. Sinking Funds

7.1 Leases in new developments where the Trust is not subject to a superior agreement may, at the Trust’s discretion, include a sinking (or ‘reserve’) fund.

7.2 The introduction of sinking funds to leases in blocks where they do not already exist is not straightforward. Where there is sufficient agreement among the leaseholders in a block, the Trust will assist in preparing the necessary Deeds of Variation and/or First Tier Tribunal application to vary the leases. The Trust must have a contractual right to hold a sinking fund. However the Trust will not pay leaseholders’ legal costs for either of these processes.

7.3 Sinking fund contributions will be calculated as realistically as possible to cover projected relevant life cycle costs, but if at any time the sinking fund has insufficient resources to effect a repair the Trust considers necessary, the difference will be levied as a separate charge.

7.4 The Trust will not operate informal or voluntary sinking funds. It will only operate sinking funds which have been included in the lease or in a Deed of Variation.

7.5 Where the Trust is subject to a superior agreement, as in many new build developments, the Trust’s and the individual property’s share of sinking fund contributions will be as per that agreement. (Though tenants will not be liable for the Trust’s repairs contributions).

8. Budget Monitoring

8.1 Spending is monitored by the relevant budget-holding managers, depending on the service being provided. The finance department provides monthly spend-to-date information to all budget-holders.

8.2 The Service Charge Team is responsible for estimating service charge information for each scheme and block.

9. Disputes over the Service Charge

9.1 Challenges to the service charge will be dealt with by the Trust according to the lease or tenancy agreement and according to legislation.

9.2 Challenges to service charges will not be dealt with via the Trust’s complaints policy.

9.3 Leaseholders and tenants have the statutory right to challenge the Trust’s service charge in the First Tier Property Tribunal.

10. Equality and Diversity

10.1 In line with the Trust’s Equality and Diversity policy,, our leaseholders and  tenants will be treated fairly and equitably without discrimination or prejudice regardless of their age, disability, gender reassignment, marital status, race, faith, gender, sexual orientation or pregnancy/maternity.

10.2 If a leaseholder or a tenant wishes to receive information in a different format, e.g. large print or as a recording, or requires information in an alternative language or the services of a translator, this can be provided as long as the cost is reasonable.

11. Value for Money

11.1 The Trust will benchmark performance against similar organisations to monitor quality, performance and cost effectiveness. It will also strive to deliver best practice and achieve top quartile performance.

12. Consultation

12.1 The Trust will consult with tenants and leaseholders about the development of service charge practices which affect them.

12.2 The Trust will follow statutory Major Works (S.20) consultation procedures where required.

13. How the Policy will be implemented

13.1 The Service Charge team is responsible for ensuring the implementation and operation of this policy.

14. Performance Measures and Monitoring

14.1 The following service charge information is monitored by the Trust:

  • Leasehold service charge recovery percentage

  • Leasehold service charge arrears

  • Total Rent arrears (including tenant service charges)

14.2 The Leasehold Manager is responsible for monitoring this performance.

15. Review

15.1 The Service Charge Manager will review this policy after three years or before if required by legislation or by best practice.

16. Legislation and other Documents

16.1 Relevant legislation:

  • Commonhold and Leasehold Reform Act 2002

  • Housing Act 1985

  • Housing Act 1996

  • Housing Act 2004

  • Landlord and Tenant Act 1985

  • Leasehold Reform Act 1967

  • The Service Charges (Consultation Requirements)(England) Regulations 2003 (as amended)