Service Charges Policy

1. Introduction

1.1. This policy applies to mhs homes Housing Association and the terms ‘mhs homes’, ‘we’, ‘our’ and ‘us’ relates to both organisations unless otherwise stated

1.2. A service charge is a charge made to residents towards the cost of services and benefits provided for them beyond the benefits of enjoying occupation of their own home.

1.3. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, caretakers, and lighting and cleaning shared areas, grounds maintenance and so on. The charges may also include the costs of management services provided by the landlord or by a professional managing agent, and contributions to a reserve fund.

1.4. The lease or tenancy agreement will set out details of what the landlord can and cannot charge for and the proportion of the charge that you will have to pay. The landlord, or sometimes a management company, provides the services and you and any other leaseholders pay for them. The landlord will generally make no financial contribution to the services, but sometimes they have to pay for the services during the financial year before recovering their costs from leaseholders.

1.5. Houses are often built on estates where a management company maintains the surrounding environment, and the transfer deeds contain a covenant for the freeholders of the houses to contribute toward the maintenance costs.

Policy

2.1. This policy sets out the principles for setting and managing service charges.

2.1.1. mhs homes are required to meet our financial, legal, health and safety and other commitments, as well as covering our costs and making proper provision for future repairs.

2.1.2. As a responsible landlord, mhs homes will maintain all properties to a good standard. This includes the upkeep of communal areas of buildings, communal gardens and estates. mhs homes will seek to recover the costs of services from those eligible to contribute towards them under the terms of their lease or tenancy agreement.

2.1.3. mhs homes will ensure that our policy for the management of service charges complies with statutory and legal regulation and best practice.

2.1.4. Sinking funds will be established where there is a requirement in the lease to build up funds for irregular, expensive works such as roof replacement or cyclical redecorations.

2.2. How service charges work

There are two types of service charge – fixed and variable.

2.2.1. Fixed service charges are based on an estimate of the costs of delivering services and are based on known costs and previous years’ performance. They are usually applied to rented properties. They remain fixed for that year regardless of the landlord’s actual expenditure, so underspends or overspends are not refunded to or recovered from the tenant. Tenants are expected to pay their contribution in advance periodically, along with their rent.

2.2.2. Variable service charges are defined in section 18(1) of the Landlord and Tenant Act 1985, as amended. They are estimated shortly before the start of the following financial year and notified to leaseholders, shared owners and any relevant tenants before the end of February. We use known contract costs, inflationary uplifts, and previous years’ performance to calculate the estimates. Leaseholders are expected to pay their contributions at the periods set out in the lease. Some leases state they should be paid quarterly, others monthly. At year end the actual costs are calculated and any deficit arising from an overspend is demanded from the leaseholder or shared owner in accordance with the lease. Any surplus arising from an underspend will be credited to the account of the leaseholder or shared owner.

2.3. Sinking funds, sometimes known as reserve funds, are established for each property where there is a requirement in the lease to build up funds for irregular, expensive works such as roof replacement or cyclical redecorations. Sinking funds are held in a bank trust account and any interest gained during the year is credited to the account. Leaseholders and shared owners will receive an annual statement of their sinking funds in September along with the service charge actuals statement. Sinking funds are not returned to the leaseholder or shared owner if they sell the property – the next owner will get the benefit of them and will carry on contributing. The principle here is “pay as you consume”. Any interest earned on sinking fund balances will be treated in accordance with the terms of the lease and applicable legislation.

2.4. mhs homes will charge a management fee for the administration of the service charge process and related costs. This is currently set at £50 plus 10% of relevant service charge costs, excluding buildings insurance, audit fee and all sinking fund collections.

2.5. General repairs costs

It is impossible to say what the communal general repairs costs will be as they are reactive. However we can look at the past 3 years actuals to give an indication of the average charge and base the estimate on the average. The following table applies:

For houses that are on street and where there are no communal areas, we will not apply a charge / estimate

2.6. Supported housing service charges. As well as the usual service charges for a building, supported housing service charges may include an element of personal charge, for example for heating a flat where there is a district heating system. These will be clearly shown on estimates and actuals statements to distinguish those charges which may or may not be eligible for welfare benefits. All properties with Communal Heating must comply with the Heat Networks (Market Framework) Regulations 2026.

2.7. Apportionment of costs. The method used to apportion costs for each leasehold dwelling is set out in the lease.

2.7.1. Some leases show an exact percentage or fraction. Many shared ownership leases say we must charge ”A fair and reasonable proportion to be determined by the Landlord from time to time”. In those cases, we either base the proportion on the number of units in the block, or upon the square metre area of the floorspace in the flat. The results of those calculations will then be shown as a percentage on estimates and actuals statements.

2.7.2. Leaseholders usually pay their proportion of all services and installations within the block, regardless of whether they use them or not. So if you live on the ground floor of a building with a lift but never use it, or if you never use a communal garden, you’ll still have to pay your contribution towards them – unless the lease says otherwise.

2.7.3. If you live on an estate, the lease will usually set out the proportion you need to pay towards the upkeep of the estate. If you have a shared ownership sub-lease or under-lease, the proportion you need to pay for estate costs will usually be found in the head lease. Generally, for estates the total cost is divided by the number of dwelling units on the estate. If you live in a block of flats, the service charges will include all communal costs arising within the block and any communal areas immediately around it which are reserved only for the use of residents of that block, such as a communal garden or car park. These will be defined in your lease, usually with reference to the lease plan. Again, you’ll be required to contribute towards all amenities on the estate whether or not you use them, for example playgrounds.

3. Timescales

3.1. The service charge year is 1 April to 31 March.

3.2. Estimates are sent out to reach customers by the end of February.

3.3. Actual service charges are published within six months of the close of accounts on 31 March. These are sent to leaseholders and shared owners by 30 September after the year end and the service charge account is adjusted immediately.

3.4. If it’s not possible to publish the year end service charge actuals accounts by the end of September, a Notice complying with Section 20B of the Landlord and Tenant Act 1985 is served on the leaseholder or shared owner - otherwise we cannot recover the costs. Under Section 20B of the Landlord and Tenant Act 1985 the leaseholder is protected from being asked to pay towards costs incurred more than 18 months ago. The Notice will include a reasonable estimate of the costs.

3.5. Between the end of the financial year on 31 March and the last week of September when the year-end statements are published, the accounts are compiled and checked, and are then audited by a firm of independent auditors in accordance with the leases.

4. Service charges for new developments

4.1. Service charges for new properties will be set by the Homeownership Team in conjunction with the Development Manager responsible for the new units at the earliest appropriate stage in the development process.

4.2. Services that are rechargeable and the composition and layout of the site must be identified so that an initial estimate of costs for the provision of communal services can be prepared.

4.3. The estimated costs will be based on a combination of initial quotations for the provision of services, including any management company estimates, alongside comparable costs from similar developments.

4.4. The Development Manager will provide all necessary information to facilitate an estimate which is as accurate as possible at this early stage.

4.5. The estimate may be reviewed at any time prior to handover at the Development Manager’s request or on new information coming to light.

5. Consultation

5.1. In accordance with the requirements of Section 20 of the Landlord & Tenant Act 1985, as amended, consultation will take place with leaseholders and shared owners where planned or major works are required which are likely to cost customers more than £250. Consultation will also be carried out in relation to charges and/or contracts for the provision of services where customers are likely to be charged more than £100 in any year. Consultation does not necessarily prevent works or contracts from proceeding but ensures customers have an opportunity to comment and make observations before decisions are made. MHS homes will seek to achieve value for money when procuring services and works recoverable through service charges, balancing cost, quality, compliance and customer outcomes.

5.2. Where planned works for the forthcoming financial year are known in advance of estimates being published for the that year, costs will also be shown in a separate section of the service charge estimate to give advance notice. This doesn’t guarantee the works will be carried out – they could be cancelled or postponed for a number of reasons. So we don’t include the costs of those works in the charges we’re asking you to pay on account, but we will include the actual cost of the works done in the year end statement. We’ll use any money held in the sinking fund for that particular type of work to offset the costs at year end, and you’ll be able to see those adjustments in your sinking funds statement.

6. Service standards

6.1. mhs homes Service have set service standards for the services which are eligible for service charges. The standards detail the tasks that are to be carried out and the frequency that they will be delivered. It should be noted that the timing of services may be subject to change, due to bad weather and/or bank holidays. Please refer to mhs homes service standards policies.

6.2. Service charges won’t be discounted or refunded due to a temporary disruption to service during the accounting year. Any services not provided will be reflected in the year end actual costs published for that year.

6.3. MHS homes will provide customers with clear information regarding service charge estimates and actual costs. Where appropriate, customers may request a summary of relevant costs in accordance with statutory rights and lease provisions. Supporting information may be provided subject to data protection and commercial confidentiality requirements.

6.4 If a customer disagrees with a service charge, they should first contact MHS homes. Complaints may be raised through the Complaints Policy. Leaseholders may also have statutory rights to challenge the reasonableness of service charges through the First-tier Tribunal (Property Chamber).

7. Roles and responsibilities

7.1 Overall accountability for this Service Charge Policy sits with the Group Finance Director. The Assistant Director of Finance, supported by the Rent Systems Accountant and the Rent & Service Charge Manager, is responsible for ensuring that service charge estimates, and actual costs are calculated accurately, transparently, and within all applicable regulatory and statutory timescales.

7.2 The Executive Director of Customer Experience and the Executive Director of Assets & Development are responsible for ensuring that their respective teams provide the Rents & Service Charges Team with complete, accurate, and timely cost information required for the preparation of service charge estimates and annual reconciliations.

7.3 The Corporate Communications Manager is responsible for supporting the communication of service charge estimates and actual costs to residents, including the proof reading and updating the letters content.

7.4 The Rent & Service Charge Manager, supported by the Rent & Service Charge Analyst, is responsible for the calculation of fixed and variable service charges. Both roles form part of the Finance Team and are responsible for ensuring that calculations are accurate, auditable, and compliant with relevant legislation and internal policies. The Rent Systems Accountant is responsible for independently validating service charge calculations and ensuring the integrity of supporting data and system outputs. The Assistant Director of Finance is responsible for reviewing and approving the service charge calculations prior to implementation. The Rents & Service Charges Team is responsible for issuing annual service charge notifications and mid-year estimated versus actual cost comparisons to residents within the required timescales.

7.5 The Home Ownership Team is responsible for maintaining and updating variable service charge letter templates for Shared Ownership, Leasehold, and Commercial customers. The team is also responsible for reviewing and quality-assuring annual and mid-year correspondence before final production and distribution.

7.6 The Housing Teams are responsible for maintaining and updating fixed service charge letter templates for General Needs and Supported Housing customers. They are also responsible for reviewing and quality-assuring annual rent and service charge increase correspondence before distribution.

7.7 The Housing Teams and Home Ownership Team are jointly responsible for the timely and effective recovery of weekly and monthly service charges, including the management of arrears in accordance with relevant policies and procedures.

7.8 The Development Team is responsible for providing the Rents & Service Charges Team with accurate, complete, and timely information relating to new developments and any services that are subject to service charge recovery. This information must be provided in sufficient detail to enable the calculation and implementation of appropriate service charges.

7.9 The ICT Team is responsible for providing technical support to the Service Charge process when required. This includes ensuring the successful upload of service charge actual charge data into the ONE Housing Management System and developing or amending reports to meet service charge operational, financial, and reporting requirements. The ICT Team will also support the investigation and resolution of system-related issues that may impact the calculation, administration, communication, or recovery of service charges.

7.10 Queries relating to the calculation or application of service charges will be managed and responded to by the Rents & Service Charges Team. Queries relating to Section 20 consultation requirements or major works recovery will be managed by the Home Ownership Team and Asset Management Team, as appropriate.

7.11 Queries relating to the quality, delivery, or performance of a service should be referred to the department responsible for providing or managing that service, which will be responsible for investigating and responding as necessary.

7.12 To ensure that services provide value for money, all operational teams must comply with the organisation's Procurement Policy and Procedures. Where appropriate, teams must also consult with residents and customers when reviewing, procuring, or changing services.

7.13 The Home Ownership Team is responsible for maintaining up-to-date knowledge of all relevant legislation, regulations, and best practice relating to leasehold management and service charge recovery to ensure ongoing compliance. The Rent & Service Charge Team are responsible for maintaining up-to-date knowledge of legislation, regulatory requirements, and best practice guidance relating to service charges across all applicable tenures and ensuring that service charge processes remain compliant.

7.14 All employees involved in the provision, procurement, administration, calculation, communication, or recovery of service charges are responsible for ensuring that service charge information is accurate, transparent, and supported by appropriate records, in accordance with the organisation's financial procedures, data governance requirements, and regulatory obligations.

8. Legislation

Relevant legislation:

• Landlord and Tenant Acts 1985 and 1987

• Housing Act 1085

• Commonhold and Leasehold Reform Act 2002

• Building Safety Act 2022

• Fire Safety Act 2021

9. Principles

Equality statement

mhs homes has a duty to ensure that no person receives less favourable treatment from the organisation on the grounds of age, disability, gender reassignment, marriage, civil partnership, pregnancy, religion or belief, race, sex or sexual orientation.

Data protection

mhs homes will only share information that meets the requirements of the Data Protection Act 2018 and the UK GDPR. Confidentiality and impartiality will be exercised by mhs homes at all times.

Feedback

We welcome suggestions and comments from people who use or provide our services. We believe that this can provide some important lessons to help us ensure that the service is improved for everyone.

If you have something to say about this policy or the information that is provided about them, then please let us know. Please refer any comments to the author of this document.