Variable service charges -what are they?
Variable service charges are where we estimate the cost of services in advance for the year and collect contributions from customers, either weekly or monthly. After the end of the financial year we compare what we’ve charged against what it’s cost. We then send out a year-end account to customers to confirm what the final costs were for the year. We either refund the balance or collect any shortfall.
A variable service charge means whilst the costs are estimated at the beginning of the financial year, on reconciling the spend after the end of the financial year the final cost may be higher or lower than anticipated. This is where the variation occurs and why they are called variable service charges.
Our financial year begins on 1 April and ends on 31 March.
For home owners we bill out or refund the balance. For rented customers we carry forward the balance to the next financial year. We either collect the balance or refund the credit in weekly or monthly instalments alongside estimated service charges for that year.
How we calculate estimated service charges
Some costs occur regularly for a set amount each month or at regular intervals through the year. These are services such as lift servicing, fire alarm servicing, and grounds maintenance. When we estimate the service charge for the year ahead for these, we check to see what we’re currently paying. We then add an estimated inflation increase to take account of the contractor’s rising costs and what increase the contract allows. Where we can agree the contractual increase before we set the service charge budget we’ll apply that increase instead.
Some costs are not as easy to estimate. These are for services which are more reactive such as repairing a door entry system, fire alarm or a lift. As we won’t know what may need repairing in the future we have to look at what we’ve spent previously and what we know may need to be done in the year ahead. We then estimate what we think it’ll cost.
We also provide some services ourselves such as communal cleaning. These include staff costs as well as overheads like materials and equipment we use. We estimate the anticipated staff time and cost. We then review what we spent on materials and equipment previously. We then use both to estimate what we think it’ll cost to provide the service in the year ahead.
It's never an exact science as not every service is easy to predict. Also not every building is the same nor has the same wear and tear nor the same occupants. All these things affect the services provided as well as the cost to do so.
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Adding Charges
There may be occasions where we have to begin a new service or begin recovering a cost we’ve not recovered. New services are usually due to need or due to legislation, for example beginning communal cleaning service where we’ve not had it before or installing fire prevention equipment to ensure compliance with fire and health and safety regulations.
For home owners we will review leases and freehold transfers to determine if costs are recoverable. Where possible we will write to let you know about any new charges and how much we estimate it will be.
For rented customers we will consult you about adding new charges. We’ll write to you explaining the reason for the charge and how much we estimate it to be. You’ll have opportunity to respond with your thoughts and any queries you may have. Once we’ve considered those thoughts and responded to any questions we’ll decide if we’ll still proceed with the charge. We’ll write to you again to let you know our decision and our reasons, how much the initial charge will be and when it will begin.
For most of our rented customers we are only able to amend service charges once a year so new charges may not begin until the following April.