Eight actions for accurate service charge estimates

Written by Kate Innes

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Service charge actuals are out the door and the next mountain to climb is setting accurate service charge estimates for April 2023. In some organisations, this can mean the service charge team are chained to their computers in isolation to crunch numbers for weeks on end. By delivering accurate service charges estimates, you can be reassured that your customers and your organisation are prepared for the final cost of services.

Why is delivering accurate service charge estimates important?

Avoid dipping into the rent pot to pay for services needlessly. The accurate setting of service charges gives some certainty to one of the largest income streams in your business, giving confidence that all recoverable services have been accurately charged for. Inaccurate estimates can lead to a peak in contact from residents querying the services they are being charged for as well as the cost of those services. Then in 18 months’ time when the actuals go out, if there hasn’t been enough consideration given to the estimates, there is likely to be a big swing in surplus or deficit to notify the resident of.

To get the most accurate set of estimates supported by good on-the-ground information, consider these eight things.

1. An Organisation-wide approach

The service charge estimates process should be outward looking with collaboration between teams across the organisation to manage the services and work with customers. When those calls come in from customers asking about changes in their service charges, you need the business to have ownership of what has been included in the estimates.

2. Timetable, milestones and approval

The date to get the letters out to customers is the same every year, but often comes as a surprise to colleagues when input is required. Make sure there is a clear timetable of tasks, responsibilities, milestones and deadlines for completion. There should be visible sign off stages before the charges are put into customer letters.

3. Service contract information

Key information you need is what services are being provided to which properties and how much it’s going to cost. The people that know this are those managing those works. Speak to your colleagues early in the process and find out:

  • What contracts are in place – have there been new contracts introduced? Are any due to end?
  • Breakdown of what properties those works are being delivered to – which properties are benefitting from the services being provided?
  • What are the costs associated with those contracts? The costs of works need to be able to be apportioned by property hierarchy, so estate, block, unit etc

4. Tenancy, lease and other agreements

Knowing contract types, what can be charged and what is not recoverable under the agreement is key information required for accurate charging. Here are a few things to look out for:

  • Tenancies not being charged for maintenance to building fabric
  • Historic agreements at properties not included in tenancy/lease e.g., no charge for CCTV
  • S106 service charge caps – is it RPI/CPI linked? What’s next year’s cap level?

5. Review the trend in charges

Review previous estimates, recent actuals and current spend to ensure the new estimates follow the story of the charges for the last year or two. Ensuring service charge estimates are as accurate as possible is a fine balance between obtaining the contract breakdown for the coming year, as well as looking back at previous years’ actuals and year to date spend to incorporate any potential ad hoc works that have bumped the expenditure before. If there is a big change year on year, there needs to be a clear reason for this.

6. On the ground knowledge

Your colleagues that deal with residents daily and visit the properties regularly, will likely be familiar with the issues and requirements of the groups of residents at each scheme. Speak to these colleagues and share draft estimates to get feedback on any issues likely to be raised by residents.

7. Prior year adjustments

Take the time to look over the adjustments that have been made following resident feedback in the last couple of years. Nothing will get a resident more upset than when we demonstrate we haven’t listened to them by making the same mistake twice.

8. Incremental improvements

Aim to make at least one improvement on the previous year. Whether that be the transparency of information provided to residents, an agreed template for record keeping with the contract manager, etc. If you can build on small improvements year on year, the task will feel manageable and like progress is being made in making the charges more accurate and transparent.

By following these eight actions, you can confidently say your service charge estimates have been set accurately based on the costs of those services and within the confines of the tenure agreements. You will reap the rewards when your phone isn’t ringing off the hook with confused residents in March. For help with your service charges, email hello@ad-esse.com. Don’t miss out on our free ROI assessment