Service charge arrears a growing issue for multi-unit schemes

Owners management companies (OMC) in apartment blocks and multiple unit schemes have been badly hit by the property downturn, and concern is growing that underfunding is laying the ground for future disasters. As is evident in the Property Clinic queries on these pages, the vexed issue of non-payment of annual fees crops up on an almost weekly basis.

A new survey from the Society of Chartered Surveyors (SCSI) tells us that 70 per cent of property managers are seeing an annual increase in service charge arrears, and the clear knock-on effect is a shortfall in funding to properly maintain buildings and grounds in these developments.

The fact that OMCs rank high up with tax and pensions in the catalogue of things people neither care about nor understand, doesn’t help matters.

According to one property manager it’s not just a case of those who can’t pay, a far greater problem is those who won’t pay. He cites one OMC where a third of the annual budget is still outstanding from owners who continue to receive rents on their properties but won’t prioritise the payment of the annual management fee.

The only recourse for OMCs is the legal route and as the property manager puts it: “The difficulties are always with the owners who play the system and have multiple properties. A costly legal process can take five years to get a resolution.”

In the meantime the building sinking fund dwindles, repair renewal timeframes get pushed out, the fabric of the building starts to suffer and the value of the asset declines.

The advice to buyers is to check the managed accounts of the OMC in a managed multi-unit development before buying.