Service charges are fees that property owners pay for services provided by their development's Owners’ Management Company (OMC). These include repairs, running costs such as block (building) insurance, electricity and lifts, and maintenance and other services such as waste collection or upkeep and landscaping of common areas.
Service charges are not an optional payment. 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 charges. Your solicitor should also have explained this to you at the time you bought your property.
Depending on your development, your service charges may pay for:
- Repair and maintenance of common areas, car park, footpaths, roads
- Cleaning common areas, windows, carpets/mats, gutters and drains
- Lift repairs and inspections
- Electricity and lighting for common areas
- Landscape 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 charges:
- General maintenance
- Waste management
- 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
Services charges are usually sent out to owners once a year, following the OMC’s Annual General Meeting. It can be agreed between the owners and the OMC that service charges can be paid in instalments rather than in one lump sum.
Service charges should be set at a level to pay the running costs for your development. Factors that may affect these running costs include:
- If common areas are designed to a very high standard
- If they have elaborate features (e.g. ponds, fountains)
- The number of lifts
- Whether there are electronic gates
- The size of the grounds and landscaped areas
- Whether 24-hour concierge/security services are provided
The service charge 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 income being used to complete the development.
Voting on service charges
The proposed service charge must be approved by vote at a general meeting of the members. The OMC should provide you with as much information as possible on how last year's budget was spent and how it has calculated the charge for the forthcoming year so that you can make a decision about the service charge proposal.
At the meeting, members can vote to approve, to amend or to reject the proposed charges. Where there is disagreement about any part of the service charge proposal, members can vote to amend the service charge proposal on the spot. To do this, 60% of those present and voting must agree this. Members can also block the proposal if 75% of those present and voting agree. In this case, the proposal must be reviewed and an alternative must be presented to the members at a later meeting.
If service charges are approved, a bill will be sent to the owner of each unit. The bill should also explain whether service charges must be paid in total, or whether you can pay in instalments. Some OMCs charge interest on money owed or late payments.
How service charges are calculated
A budget for the running of the entire development is calculated by the Directors of the OMC. The managing agent may help the Directors to decide what the budget should be, but the responsibility for setting the charges and their collection lies with the OMC. This budget may change from year to year, so your own payment may vary. In general, charges should be based on normal wear and tear, inflation and new or additional services.
The percentage of the overall service charge that each owner must pay is calculated in various ways, such as the size of the unit, or the type of unit. This should be clear and transparent and information should be provided to all owners. If particular services are only provided to some owners, this should also be clearly explained.
In general, the developer sets out the initial calculation method for service charges and sinking fund contributions. The calculation method should be set out in the contract to buy your property. The initial charge is usually set out in your contract, but the service charge for the following years won't be known in advance and may change.
As a property owner, you would have signed a contract or lease when you bought your property which means you are legally obliged to pay your service charges. If you do not pay, the OMC can take legal action against you. Any outstanding debts you have to the OMC can be tied to your property – for example, if you sell your property, the OMC can get a court judgement for your debts to be deducted from the money you get once the sale has gone through.
If owners do not pay their charges, the OMC will also run short of money and in time it may not be able to provide even basic services such as paying block (buildings) insurance or maintaining the lifts. It is a requirement in almost all mortgage agreements that appropriate buildings insurance is in place. If your OMC cannot pay the building’s structural insurance premium, you may breach in breach of your mortgage contract.
Get information on what you should do if you are unhappy with the service from your managing agent.
You may be entitled to tax relief at the standard rate on some service charges if you have paid them in full and on time in the previous calendar year.
Service charges paid to independent contractors for domestic waste collection or disposal qualify for tax relief. You should contact your local tax office for further details.
Service charges paid to local authorities for the following domestic services qualify for income tax relief:
- The provision of water supply, refuse collection or disposal, or sewage disposal
- Group water schemes for water supply
A sinking fund is a pot of money that is put aside every year to cover the cost of major long-term expenses. The Multi-Unit Development Act 2011 introduced a legal requirement for OMCs to establish and maintain a sinking fund. Developments that do not have a sinking fund must introduce one no later than 3 years after the transfer of the first property in the development or 18 months after the Multi-Unit Development Act 2011 was passed.
The Multi-Unit Development Act 2011 says that a minimum of €200 per unit must be paid into a sinking fund every year but amount higher than this can be paid if the members agree to set the contribution at a higher amount.
The sinking fund is for longer term expenses, such as lift or roof replacement or repair. The Multi-Unit Development Act 2011 states that a sinking fund is to be used for refurbishment, improvement or once-off maintenance, or advice from a qualified person it relation to these types of work. It is a legal requirement that money in the sinking fund must be held in a separate account from service charges and the authorisation of the Directors of the OMC is required to access the sinking fund.
You should not expect to see frequent use of your sinking fund, as it is designed to provide for longer term or emergency expenditure items only.
A similar voting approach should be adopted for the setting of sinking fund contributions, although as a member of the company you should expect to see far less
Before you buy in a multi-unit development, ask the estate agent or your solicitor what sinking fund is in place or planned for the development. If you are buying in an older development, this is very important as it is more likely that the OMC will need to access the sinking fund than in a newer development.
As a general guide some of the most common uses of a sinking fund are repair, refurbishment or replacement of:
- Building structure
- Windows and walls
- Roof and roof finishes
- Internal partitions
- Floor structure
- Internal and external decoration
- Plumbing and water services
- Heating and ventilating
- Lifts and escalators
- Mechanical and electrical services and infrastructure.
Directors of an OMC should think about employing a chartered surveyor every three to five years to assess the short, medium and long-term maintenance issues that will be needed to keep the development in a state of good repair.