Creating a service charge budget might sound about as exciting as watching paint dry. But if you’re a flat owner, a resident management company director, or a property manager, getting this right can make an enormous difference to both building maintenance and owner satisfaction.
A poorly planned service charge budget leads to financial shortfalls, deteriorating buildings, and angry residents. A well-planned one ensures your building stays in good nick without unnecessarily emptying owners’ pockets.
At Legacy Block Management, we’ve prepared hundreds of service charge budgets for buildings across England. Here’s our straightforward guide to doing it properly.
Let’s start with the basics.
A service charge budget is a financial plan that estimates the costs of running and maintaining a building for the upcoming year. This includes everything from cleaning common areas and maintaining lifts to insurance, gardening, and utilities.
The total amount is then divided among flat owners according to the percentages specified in their leases. These contributions fund the day-to-day running of the building and, ideally, contribute to a reserve for future major works.
The service charge for property maintenance isn’t just another bill – it directly affects:
Well-maintained buildings with adequate service charge budgets retain their value better than those that cut corners.
Nothing sours relationships between neighbours faster than disputes over money. Clear, fair service charge budgets reduce conflicts.
The Landlord and Tenant Act 1985 requires that service charges be “reasonable.” Challenged charges that seem excessive can end up at a tribunal.
Unexpected expenses without adequate budgeting can lead to cash flow problems, delayed repairs, or sudden demands for additional funds.
Start by looking at what you actually spent in previous years. This gives you a baseline for your estimates.
Pull together:
Look for patterns, such as areas where you consistently overspend or underspend. This helps identify where your estimates need adjustment.
Once you have historical data, adjust for inflation and known price increases. This is especially important in the current economic climate where costs for many services are rising significantly.
Key areas to check for price increases:
The Bank of England’s inflation calculator or retail price index figures can help with general inflation adjustments, but always check with suppliers for specific increases.
Walk through your property with a critical eye, noting:
This physical inspection often reveals issues that might not be obvious from just reviewing paperwork.
Service provider costs often make up the largest portion of property management costs. Periodically reviewing and tendering these contracts can lead to significant savings or service improvements.
Areas commonly worth tendering include:
When tendering, don’t just look at the bottom-line figure. Consider reputation, reliability, and specific services included in the contract.
Involving Directors who are also leaseholders in the budget decisions leads to greater acceptance and fewer disputes.
Consider:
This consultation step is crucial for maintaining good relations and ensuring the budget aligns with their expectations and needs.
A well-structured service charge budget typically includes these main categories:
Even the most meticulously prepared budgets can’t anticipate everything. A contingency of 5-10% provides a buffer for unexpected expenses without requiring a supplementary demand from owners.
The way you present the service charge budget matters almost as much as the figures themselves. Make sure to include:
A well-presented budget demonstrates professionalism and helps owners understand what they’re paying for.
It’s tempting to keep service charges artificially low to please residents. However, this often leads to financial shortfalls, poor maintenance, and larger increases later. Be realistic about costs.
Many buildings focus only on immediate needs, neglecting to build up reserves for predictable long-term expenses like roof replacement, lift refurbishment, or exterior redecoration. This forces flat owners to pay large one-off bills when major works become necessary.
Service charge budgets need to comply with various laws and regulations, including requirements for consultation on major works (Section 20 of the Landlord and Tenant Act 1985) and reasonableness standards. Ignoring these can lead to disputes and legal challenges.
Springing service charge increases on owners without proper explanation is a recipe for conflict. Regular, clear communication about what the budget covers and why costs are changing helps maintain good relations.
Many buildings stick with the same service providers year after year without testing the market. Regular tendering often reveals opportunities for better service or lower costs.
Property management fees are included within the service charge budget. These fees cover professional management of the building, including:
While it might be tempting to try saving money by self-managing, professional management often pays for itself through better contractor rates, more efficient operations, and reduced risk of legal issues.
When assessing property management fees, consider:
Modern property management relies increasingly on specialised software to track expenses, forecast costs, and communicate with residents. Good systems allow:
These tools help keep property management costs under control while improving transparency and efficiency.
At Legacy Block Management, we believe in a transparent, collaborative approach to service charge budgeting. Our process includes:
We understand that every pound in a service charge budget comes from residents’ pockets, so we take our responsibility to manage these funds efficiently very seriously.
If you’re struggling with preparing a service charge budget for your building, professional help is available. Legacy Block Management offers:
A professional perspective often identifies savings or improvements that more than offset the cost of the service.
A well-prepared service charge budget is far more than just a financial document. It’s a plan for maintaining your building, a tool for managing relationships with residents, and a legal necessity.
Taking time to get it right pays dividends through well-maintained properties, satisfied residents, and fewer disputes. Whether you manage your own building or use a professional service, the principles of transparency, fairness, and forward planning remain the same.
For help with your service charge budget or to discuss how Legacy Block Management could support your building, contact us at [email protected] or call 03300104717.
Legacy Block Management provides professional property management services throughout England, helping residential buildings implement effective budgeting and financial management.
