The Service Charge – More Friend than Foe?
Apartment living is on the increase and is certainly enjoying its new sophisticated image with many new and fashionable addresses appearing on the Jersey market. However 'a la mode' an apartment may be, the legalities remain the same and, in Jersey, these apartments will be bought by way of a Share Transfer or Flying Freehold transaction or will be rented under the terms of a Lease. Invariably, each of these modes of transfer will include a mechanism whereby the purchaser or tenant will be expected to contribute to an annual service charge. The terms of this mechanism are set out in the Articles of Association of the Share Transfer Company or the Declaration of a Flying Freehold Association or the Lease of a rented property. There is often a misconception that the service charge is an unwelcome additional cost peculiar to apartment living. This article will attempt to negate this premise or at least highlight the fact that this is certainly not always the case.
The service charge is simply a means of collecting the costs of maintaining the building, its common parts and the various services provided to its occupants. More often than not, a properly drafted service charge mechanism will advantage the owner, since the proportion paid by each owner will be calculated either (where appropriate) on an equal basis, or fairly by reference to the square footage of the apartment respective to the remainder of the development. The service charge generally covers essential items such as the cleaning of common areas and windows, fire equipment, lift maintenance, insurance, external maintenance and gardening, Parish Foncier Rates (in respect of share transfer apartments) and the managing agent's fee (if any). For the most part, these are essential costs that would be incurred by any home-owner or tenant but perhaps in a less regular and thus less manageable way. A good lawyer will ensure in the initial drafting of the service charge provisions that payments will be made regularly and funds applied properly for the benefit of the building and its owners. If acting in the purchase of an apartment subject to an existing service charge, a lawyer will obtain as much information as possible from the managing agent in respect of the budget and any planned expenditure.
Much as the service charge itself is often maligned, so too is the practice of appointing managing agents. Whilst on smaller developments this may not be necessary, the managing agent can prove to be a tremendous asset to the owners or occupiers of apartments in facilitating the necessary maintenance and budgeting, which would ultimately need to be addressed by any property owner anyway. The managing agent will not only act as a first point of contact for resolving any issues but will also take the headache out of any work, maintenance and budgeting that will need to be done. An added bonus is often taking advantage of the agent's relationships with tradesmen and insurers, enabling the negotiation of favourable terms. The managing agent can be instrumental in completing the modern apartment dwellers vision of hassle-free living.
Another facet of stress-free apartment living is the infamous "sinking fund", sometimes demonised as "dead money". The funds set aside and maintained in a separate account for extraordinary expenditure are often, in fact, a saving grace. Not only is a sinking fund fundamental to combating nasty surprises (particularly important in old buildings), it is also an investment in the property that could really pay off long-term and on resale. A sinking fund is a good marketing tool providing comfort to prospective purchasers, particularly as the building ages and the sinking fund grows. In the event of the purchaser's lawyer uncovering plans for extraordinary future expenditure, the existence of a sinking fund could make all the difference as to whether this discovery would be a "deal breaker" or not. There is clearly no such ability to soften the blow in the sale of a freehold house.
The key to your future apartment and to navigating your way through the points raised above is to instruct a good lawyer who will be focussed from the outset on identifying and addressing these issues and protecting your interests at all times.
For more detailed advice on the legal intricacies of buying or renting apartments in Jersey, please contact Gavin Renault or Sonia Smith at Mourant du Feu & Jeune on 609983 or email gavin.renault@mourant.com or sonia.smith@mourant.com.
