Questions & Answers: Service Charges & Management Fees – Ballincastle
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Questions & Answers: Service Charges & Management Fees

Posted by admin on October 27, 2020
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What is included in service charge?

Generally, the service charge covers building insurance, upkeep, heating and lighting of communal areas and lifts, garden maintenance, dustbin collection, periodic refurbishment, window cleaning, general administration and sinking fund provision. Occasionally, apartment heating and 24-hour security is included.

What are management company fees?

A dedicated property management company for your building can be expensive, but there are significant benefits if the process is managed properly. A block management company will take care of all the monotonous tasks involved in the daily management of an apartment building.

This includes maintaining the common areas of the property; taking care of legal documents like service agreements and lease contracts and performing regular inspections.

The amount you pay for a property management company is contingent on the number of units within your building. A large complex with tens of units is much more demanding and collects more fees than an apartment building with 10 or 20 units.

Choosing how to manage an apartment block is a big decision, whether using a property management company or taking the self-managed route. It’s an investment that shouldn’t be taken lightly. Do your due diligence on the property management company you want to appoint. Make sure they have enough staff to manage your block effectively and efficiently. Aside from the price, service is the most important consideration to make when looking for an apartment block management company.

What can be included in management company fees?

The management fees charged should comprise only the reasonable costs and overheads borne in the process of operating and managing the services. These would also reflect the actual work necessary to manage the apartment block. It is recognised that whoever is providing the service is entitled to cover their costs and overheads, including a reasonable profit element.

The property manager should ensure that the management fee relates only to the actual work carried out in managing the service charge. Other costs, for instance, asset management and rent collection, should be excluded from the service charge management fee, which would be stated in the service charge report.

Management fees should be set on a fixed-price basis rather than being calculated as a percentage of expenditure. The management fee should be a fixed fee subject to annual review or indexation.

Are service charge costs the same as management company fees?

No.

Service charge costs are fees that property owners pay for services provided by their development’s Owners’ Management Company (OMC).

You must pay service charge costs. They generate the cash flow that an OMC needs to provide services and maintain your development. The lease or contract you sign when you buy a property in a multi-unit development sets out your legal obligation to pay these fees. Section 18(10) of the Multi-Unit Developments Act 2011 places an obligation on you as an owner to pay your management fees. Your solicitor should have explained this to you at the time you bought your property.

Depending on your development, your management fees may pay for:

• Repair and maintenance of common areas, car parks, footpaths, roads
• Cleaning common areas, windows, carpets/mats, gutters and drains
• Lift repairs and inspections
• Electricity and lighting for common areas
• Landscaping and gardening, pest control
• Security – internal locks and doors, intercoms, external doors and gates
• Safety – smoke alarms, fire extinguishers, health and safety inspections
• Refuse collection and recycling
• Professional charges (for example block/building insurance, public liability insurance, the OMC’s legal/auditor fees)

The Multi-Unit Development Act 2011 sets out a list of cost categories to be used by OMCs when setting out service charge fees:

• Insurance
• General maintenance
• Repairs
• Waste management
• Cleaning
• Gardening and landscaping
• Concierge and security services
• Legal services and accounts preparation
• Other expected expenditure relating to maintenance, repair and management of the common areas

Service charge costs are usually due annually, following the OMC’s Annual General Meeting. It can be agreed between the owners and the OMC that management fees can be paid in instalments rather than in one lump sum. Service charge costs should be set at a level to pay the running costs for your development, and to provide a sinking fund for expenditure on refurbishment, improvement or maintenance of a non-recurring nature, such as the replacement of roofs, lifts, or other items of equipment.

The service charge costs should not include costs relating to the original design, construction and snagging of the development and the Multi-Unit Development Act 2011 specifically prohibits service charge costs income being used to complete the development.

Management fees charged should comprise only the reasonable costs and overheads borne in the process of operating and managing the services by the property management agent.

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