Be vigilant to avoid service charge hell

Apartment Living: There are ways to avoid a whopper of a service charge. Edel Morgan discovers

You've moved into a new apartment development, know few - if any - of your neighbours and have no idea which management agent is looking after the day-to-day running of the development. No residents committee has been formed as yet and, as far as you're concerned, ignorance is bliss - until you are presented with a whopping service charge in year two or three or the common areas start falling apart.

To avoid this scenario, residents should get involved straight away to keep an eye on how the management agent is spending your service charges. "Think of it like this," says Michael Noonan, a property management consultant. "You've bought a vehicle, someone has been appointed to drive the vehicle, you are paying for fuel and tax, so you should be giving instruction about where the vehicle is going."

If the developer is still on site and hasn't handed over the management company to the residents, Michael Noonan advises setting up an ad-hoc committee in the interim. "Get the management agent to convene a meeting of owners when the scheme is 30 to 40 per cent occupied. Most reputable management agents will welcome the input of owners. Also, it allows the residents to compile a list of jobs that need to be done before the developers move off-site."

If the management agent is less than co-operative then you might try approaching the developer - and ask them to get a new management agent on board. If residents don't assert their authority from the beginning, they are depending on the goodwill and professionalism of the agent. "And if you don't get a good agent, things can fall down. You are effectively handing them a chequebook to do as they will."

His advise is to be assertive when dealing with the management agent. "Don't be afraid to ask the awkward questions and keep a constant eye on expenditure."

Regular financial reports - every three to six months - and updates on expenditure are vital and meetings should be held on a frequent basis. Also, it is necessary to ensure the agent has levied residents in accordance with the terms of the lease. For example, the lease may stipulate that apartments pay a higher service charge than duplexes because they have common areas that need to be looked after - a less reputable or competent agent may apply the same charges across the board.

While the management agent needs to be fully accountable, residents also need to be realistic about service charges.

"This is the time of year when lots of management agents prepare budgets and it's important figures are scrutinised. Sometimes, though, it's hard to get people to step back and look at the bigger picture. They can get bogged down in their own little issues, and may not take a realistic approach when it comes to increases in the service charge."

Often service charges are set at a minimum in a new development so as not to scare off buyers, but this will not budget for wear and tear, and extra services once the scheme is fully occupied. If a block is run smoothly the service charge should only increase in line with inflation without any major shocks in store.