Service Charge Recovery

The service charge is an estimated advanced payment for service that will be carried out. Therefore the speed in which payments are made becomes vital to the obligations of the landlord or management company. If there is not a working process in place for service charge arrears then developments can become unmaintained and landlords or management companies could face legal action from any creditors.

As with most of the advice I give your starting place will be the lease/transfer. This document will set the framework for your service charge recovery process including what you can and can’t do. The lease/transfer will confirm the following;

1. When payment is due & in how many instalments
2. After what time period any owed money becomes a debt
3. If interest can be charged on arrears and at what rate
4. If costs associated with enforcing payment can be recovered
5. If the service charge still has to be paid in the event of a dispute

Once you have obtained all of the above information you can look to plan a reasonable and lawful recovery process. Processes will vary from development to development, however I consider the following to be a good working example.


Stage 1 – Invoicing. Make sure the service charge invoice is sent out in advance of the payment due date. This allows disputes and queries to be dealt with before any of the money becomes payable. Include as much information about the service charge as possible with the invoice, the more information provided the less chance of dispute and therefore the greater the chance of payment. Depending on your needs you may want to offer payment via more instalments then the lease prescribes. Smaller instalments increase the chances of payment; however they will hurt the cash flow, so run some forecasts to determine the maximum number of instalments you can offer.

Stage 2 – Reminder. There is no obligation on the landlord or management company to remind a service charge payer that they are in arrears. In fact they should be aware, due to the covenants they agreed to abide by in the lease/transfer. However I believe that it is only fair and reasonable to send at least 1 reminder to any debtors. This reminder should be sent after the time period you found from point 2 in the above list. Reminders should cover why debts have been incurred, the importance of paying on time and the further action that may be taken if payment is not made and most importantly in what timescales.

Stage 3 – Make contact. You should have mentioned a deadline for payment on your reminder; once this date has arrived I suggest calling any debtors you still have. This may not be possible for all debtors (if you don’t have their number) in which case proceed to stage 4. However for those that you do have numbers you may find that discussing their non-payment helps to resolve issues and remove any reason for non-payment.

Stage 4 – Enforcement. Hopefully not many debtors will make it this far, however for those that do the time for forceful action has arrived. The first thing to do is to begin adding interest at the rate specified in the lease. I also suggest that a debt collection agency or solicitor is contacted (you should arrange terms of business before any debts are passed over and state costs on the reminder) and asked to pursue the debt on behalf of the landlord of management company. If possible I would recommend finding a company that will not require payment in advance, as any advance debt costs will have an impact on the service charge. Where as payment after successful action will not impact the service charge and give incentive to the debt agency or solicitor to recover the arrears. If the lease/transfer allows for costs to be recovered (most do) add the costs to the account of the debtor straight away.

Stage 5 – Mortgage Lender. In some instances, on leasehold properties, you may find that the mortgage lender will pay the debt on behalf of the property. Ensure that the debt collection agency or solicitor do check with lenders as this can be a very successful, quick and cost effective way of recovering arrears.




Stage 6 – Court. In a few instances you may find the case makes it all the way to court. In the event that a case becomes defended a witness from the landlord, management company or managing agent may need to attend. As long as the terms of the lease/transfer have been followed and the debt has been reasonably managed (following the above steps will ensure this) then I see no reason why a judgment will not be awarded against the debtor. In some cases you may find the judge awards judgment in your favour however agrees to the debtor paying off the arrears in very small amounts. If you are not happy with any payment plans made then it is possible to appeal, discuss this with your solicitor.

Stage 7 – Enforcing a Judgement. Just because a judgement is won doesn’t guarantee the money will be recovered. Initially there are three way to enforce a judgement;

Charging Orders – places a restriction on the property stopping it being sold, re-mortgaged or assigned in any way without the debt being paid first. The problem is that there is no guarantee when the money will be recovered.
Mortgage Lenders – If possible go back to the lender, they may be more inclined to pay when a judgement has been awarded.
Bailiffs – Will guarantee at least a small amount of money being recovered each visit, however it is highly unlikely the full amount will be recovered quickly (especially for large debts).

Stage 8 – Forfeiture. In very extreme cases you may need to apply to end the lease of a particular debtor. This option is not available for freehold properties. Due to the complexity of this section I have added a separate guidance article on Forfeiture.