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Question of the week

Q.What is the difference between a service charge budget and a service charge demand?
Mr B Smith


This can appear complicated and many lessees can get confused about their service charge demands. The first and second half   year service charge demands that you receive, will be based on the service charge budget. The budget is nothing more than an estimate of the anticipated expenditure for the forthcoming year.

You need to understand that, technically, the demand itself is not a service charge. It is simply the means to collect money in advance for the purpose of paying the bills that will become service charges at various stages throughout the year, but have not yet been incurred. In essence you are loaning the landlord/residents management Company (RMC) or Right to manage Company (RTM) money in advance so that it can pay the expenses. When the money is spent on providing services, the amount spent becomes known as the actual expenditure. This is an actual service charge.

At the end of the year the landlord will balance the account and issue a summary of the actual expenditure against the money that he demanded in respect of the budget. Depending if he spent more or less than demanded previously you will receive either a credit or a balancing charge. The demand for the balancing charge is an actual service charge demand and will be due for payment.

This answer only applies to leases that have a provision for advance payments to the landlord.

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