AON Knowledge Library

Service Charges

Service Charge Collection

If you’re a director (or even an owner) in an owners’ management company (OMC), collection of annual management charges will be one of your priorities.

However distasteful it may seem, without management charge income, services cannot be provided. The bins will start piling up, the lifts won’t work, and it will be dark at night on the stairways.

Unfortunately, not everyone will see it that way. At the time of buying their property some owners may not have appreciated that annual service charges are part and parcel of apartment living.

Others will think they are not getting value for money. Some will prioritise other obligations above service charges.

There are some things you can do to help keep the cash flowing.

* Communicate well

If owners understand what they are paying for, where their money is going, and that it’s not being pocketed by the OMC, the managing agent, or anyone else (lots of people believe those, even if rarely true), they’ll be happier paying.

If they can see the effects of their service charge (painted walls, clean carpets, etc.), they will be more likely to pay. Prioritise visible things once the essentials are paid for.

* Get people involved

Get people to help you look for new providers of services. Not only will they help you conduct more thorough tenders but they will be happier paying if they know they are receiving value for money.

* Send bills out early

Give people time to digest the bill, to talk to you, to ask questions, and to clear up any confusion. Give them time to gather the money.

* Be flexible in accepting payments

If you can, accept payment every month or even quarter, instead of just once a year. It may make payments easier to manage. Be careful, because cash flow can become a problem, especially if people stop paying in the middle of the financial year.

If you have done all that and you are still having problems, you are not alone. Here are some more forceful measures OMCs have been forced to take.

* Charge interest to the owner

This can only be done if your lease agreement permits. Interest can accumulate very quickly so it is in owners’ interests to pay as soon as possible.

* Send warning letters through

These letters will go out on Stubbs Gazette (a newsletter of all people with High Court payment judgements against them) headed paper and usually receive a prompt response.

* Deny interest letters

Where an owner wants to change their mortgage provider, the bank will ask the OMC for an interest letter. This can be withheld until the service charge balance has been paid.

* Deny parking permits

If your block or estate operates a parking permit scheme, you could refuse to issue or renew parking permits for owners who are in arrears.

* Hire a debt collection solicitor

These are firms who specialise in collecting payments. They issue the ‘dreaded’ solicitor’s letters.

If that fails, they will take the owner to court where you should get a payment order, or instalment order. Depending on your lease agreement, you should be able to charge the solicitor’s and court costs to the owner.

* Insurance Policy

Every service charge includes a contribution towards the block insurance policy. If an owner is a persistent non-payer, you might be able to instruct your insurance company to remove their property from the list of policy beneficiaries. This means that if there are any problems in their unit, they won’t be able to claim from the block policy.

The insurance company should also notify the owner’s mortgage bank (if any), to advise that the unit is uninsured. This may void the owner’s mortgage, forcing them to pay or sell. This may be a risky course of action, because the lease agreement is likley to state that the OMC must provide block insurance cover.

Hopefully, by the time you’ve done all the above, your OMC finances will be a better state. You need to maintain an eye on matters to make sure that actions are being carried out, and that new non-payers don’t slip in unnoticed.

Also make sure not to rely on managing agents – collecting fees is not always their priority.