Components of excellent service charge demands
Regardless of tenure, a service charge release is a major mailout received by many of your customers every year (for some, twice every year). It is also often a time of anxiety for many customers who may be struggling with managing their money, and will be receiving increases relating to other bills at the same time.
With this in mind, managing the customer experience relating to service charge demands is key, and goes beyond just what information it contains; it must speak to the clarity of the information, its relevance to the customer and how the document structures the information it provides. It is a major communications opportunity with your customers and should be considered and managed as such. It is a chance to build trust in your charges, but equally, if done poorly, can create uncertainty for the customer that takes time to rebuild.
To assist in managing the customer’s experience, we want to meet the customer’s expectations of what they are looking for within the document. This can be done in two ways.
#1 - A layered document, which clearly shows any resident actions and expectations as soon as possible, but progressively provides more detail on subsequent pages to ensure that the more detail-oriented customers can obtain the level of information they require.
#2 - A basic document, containing all required information to be compliant that also clearly shows any resident actions or expectations as soon as possible within the document, but does not have the backing information to support the accounts. The letter however contains a link to a portal where the resident can then access this information. There is also an ability to opt-out and revert to a paper version.
These options allow the customer to delve as deep as they wish to about their service charges, and still access relevant information to support their charges and evidence the transparency within the process.
It should be noted, that despite the considerable opportunities modern technology affords us, the way demands are to be served is governed by S196 of the Law and Property Act 1925, unless the lease expressly states otherwise. This means we are limited in the ways demands can be deemed as served upon the customer, and unable to fully utilise technology in the way we would like.
Cover letter
Your cover letter needs to introduce your demand pack. It should:
Be an introduction to what’s inside
Not be overly wordy; you can add detail later in the information
Have a clear call to action – what do you want the customer to do? What information must they know if they don’t read the whole pack? In the case of an estimated demand, this might be how much they pay and how frequently (for example, £150 every month). If there are additional requirements for this particular customer, please be clear here. These can include providing the information to their local authority if on some form of means-tested benefits, or updating their standing order or amount they pay, if not on Direct Debit. If the demand is for actual costs, this would include your surplus or deficit figure, and a clear understanding of when under the terms of the lease or tenancy this is due.
It should also signpost customers who might be in financial difficulty to support, or to a page in your supporting information which may contain multiple routes to financial support, both internal to your organisation and locally to them. If customers wish to ask questions, signpost them to the correct channel into your organisation.
Service charge breakdown
Your service charge breakdown should be as clear as possible. As with all breakdowns of cost, layout is important in terms of ensuring it is easy to read and understand. You should avoid at all costs information that is not required, such as services which are not relevant to the customer’s development.
In the process of providing the information to the customer, consider using multiple pages to ensure that you can evidence costs as clearly as possible, and again layer the information as much as possible so the customer can choose the level to which they would like to engage with the detail.
While every development is different, here are 12 things which good breakdowns of cost will make clear:
The address of the property in question, as well as other unique identifiers such as a Unique Property Reference Number (UPRN). Some owners may be portfolio landlords with multiple properties, whilst having the address makes it clear that this information relates to the specific property.
The accounting year the demand relates to.
Whether it is an estimated demand or an actual demand.
The services provided, the total cost of providing those services, and their cost to the customer, utilising an appropriate property hierarchy or schedule-based system which aligns with the terms of the lease/agreement in question.
The specified proportion used, or apportionment matrix should this differ from service to service.
If the demand is an actual demand, it should include the comparison between the estimated costs and the actual costs, including any variance.
If the demand is an actual demand, and there is a sinking or reserve fund, a balance of account including all debits, credits, interest and deductions needs to be included.
Where there is a third party involved, it should be clear what their charges are, and how they translate to the property. This may include some information around differences in accounting year and how that impacts the charges. Further information should be provided later in the pack (see supporting information section).
If there is any relevant information that will help the customer understand their charges that relate to how the figures are produced, these should be included. For example, any capping of service charges (either through an incentive arrangement, S125 Housing Act 1985, or through incomplete S20 consultation requirements), and if appropriate, when this capping will end. Other notes might relate to the period in question, changes to the accounting year, new charges or contracts, or other information which might impact the service charge and help the customer understand them.
A variance report. If an estimated demand, this should be a comparison of costs from estimate to estimate and if appropriate, actual to actual. Any high levels of variance (for example, 10% or more) should have a description as to what is driving this increase.
If a sinking or reserve fund is in place and based on an asset lifecycle, you should include any forward-looking information you have around asset replacement or cyclical programmes, and the health of the fund in place. Should the health of the fund reduce, this should drive an intervention of some kind. The fund should be reevaluated at the point of any major withdrawal to ensure it meets its purpose in the medium and long term.
Either on the breakdown itself or in the information provided, you should provide a clear statement relating to S47 & 48 of the Landlord and Tenant Act 1987. I recommend their inclusion on the breakdown itself, to ensure that it can be clearly evidenced, even if supporting information is misplaced.
Supporting information
With the costs now explained, it’s important to explain what the services entail for the development in question. This information ideally should be bespoke for that customer’s property and contain no irrelevant information.
Explaining the services provided and any details of how those services are performed is key to service charge transparency – after all, service charges are a byproduct of that service, and therefore what is performed is key to helping the customer understand if their charges are good value.
Housing, and in particular service charges, seems to have its own language. As housing professionals, this becomes part of our understanding, but the various terminology, acronyms and legislative or case law references we make can be very confusing for the customer and can act as a blocker to understanding. Whilst I do not recommend the inclusion of a glossary of terms within every breakdown, it should be provided at the start of a new tenancy/lease/upon assignment, and an online version should be referred to within the supporting information with each demand.
Other things that should be included are:
The services provided to the development, including what the service is, what being performed and by whom, and if possible, the scope of the service provided, the frequency and the length of time it is performed.
If there is a third-party managing agent in place, this should be clear, as should any delineation of responsibilities between the managing agent, the Registered Provider or any other parties involved. It should be made clear where the relationship with the third party is not under your control, or where an Estate Management Company has been set up and your involvement in that company. Where appropriate, the contact details for the Third Party should be included.
Information around payment. This may include payment options, what do to in situations of hardship, details of services specific to the customer’s location.
If you have Administration Charges, you should list these or provide a link to where these are listed, including their associated costs.
If an estimated demand, you might have some rules or assumptions upon which you have increased costs. Great organisations use multiple metrics, including internal pressures, data from the Office of National Statistics (ONS) and the Bank of England’s Monetary Policy Reports, which are forward-looking, as well as compound inflation where costs are increased from actuals. Transparency over why you have increased costs in the way you have (in addition to the variance reporting previously mentioned) is key to residents understanding, especially where costs are above inflation.
FAQ’s. These should be based on common questions you receive as an organisation, by analysing the type of enquiries, questions and complaints you receive.
A compliant Summary of Tenants’ Rights and Obligations. If there are Administration Charges, you should include one for that too. This should be in the correct format, wording and font size.
Final thoughts
This is not an exhaustive list, and not all of these components are required or appropriate every time. I have not included elements which would be appropriate should the demands also include rent, and additional notices may be required depending on the type of charge and the terms of the customer’s agreement with the organisation.
All organisations should consider getting a legal opinion where they are unsure of their requirements under legislation or lease.
