Why you should think again about spreading service charge payments

Foremost is that the Management Company is promoting/allowing a breach of Lease, which then has the knock on affect in respect of, amongst other things, credit control and budgeting.

Second, is that the arrears chasing becomes impossible to control and monitor because every leaseholder is in arrears the moment a demand is issued. Invoking any interest clauses in the lease becomes difficult as calculation of said interest is overly complex and the Management Company misses out on this potential income stream and using this deterrent to encourage prompt payment  

Any monthly payments which  have not been correctly adjusted to meet the annual or biannual charge, produces small balances remain outstanding on service charge accounts which become disproportionately expensive to chase as the administration costs involved in sending reminder letters for a small outstanding balance are the same as those for a bigger balance. This can be reflected in management fees.

Budgeting and cash flow are adversely affected by staged payments because many regualr costs and contracts have to paid  annually or quarterly. When funds arrive piecemeal, there are occasions when there are insufficient funds to meet these costs, in particular, buildings insurance, it becomes necessary for insurance to be paid on a monthly basis which then incurs interest charges for the management company.

So why should those individuals who do pay in accordance with the terms of their lease, be penalised with interest charges, incurred due to some leaseholder not complying and making monthly payments.

What are the alternatives?

The obvious option is to rigorously allow payments in line with the terms of the lease. Another is to have leaseholders pay service charges so that their accounts are up to date and then pay monthly in advance of the next scheduled payment. This would ensure that Leaseholders are paying service charges in advance. The difficulty in this instance for leaseholders is making that first upfront payment, but the end result would be compliance with the terms of the lease and monthly payments moving forward.

A further alternative would be to set up an arrangement with a credit company whereby a leaseholder enters into a credit agreement and then repays the finance company on a monthly basis, including interest at the agreed rate under the credit agreement. In this way, the managing agent receives the funds as designed under the lease and the Leaseholder is not in breach of that lease. 

Matthew Young, Director of Integrity Property Management