Service Charge Policy

Last reviewed: June 2024

  1. Scope
  2. Purpose and objectives
  3. Policy statement
  4. Definitions
  5. Policy
  6. Compliance
  7. Responsibilities
  8. Equality, diversity and inclusion
  9. Legislation and regulation
  10. Review


1 - Scope

  • This policy applies to all customers who reside in properties owned or managed by Sovereign Housing Association Limited and/or Sovereign Living Limited and/or Sovereign Network Homes and its subsidiaries.
  • This policy covers service charges for all tenures and or assets. By all tenures/assets we mean, social rented, supported, specialised supported, temporary accommodation, affordable rent, keyworker, shared ownership, market rent, intermediate market rented homes, garages, and commercial units.
  • The policy will guide everyone involved in setting and calculating service charges within Sovereign Network Group (SNG).



2 - Purpose and objectives

The purpose of this policy is to provide a framework for the legal, regulatory and operational management of service charges.

  • SNG aims to recover no more or less than 100% of the costs of providing services through service charges, where the tenancy agreement/lease allows it.
  • Service charges will be set and managed in compliance with all relevant legislation and best practice.
  • The services provided will be clearly identified to customers and set out in tenancy agreements/leases.
  • Estimated service charges are calculated based on previous expenditure and contract costs plus uplifts to allow for any known increases or decreases.
  • Estimated service charges are not altered as a result of service failure. This is reconciled, through the actuals process, only if there is a reduction in the costs incurred for the service. Any dissatisfaction with the service levels should be addressed through our complaints process.
  • We will:
    • apply service charges in line with the terms of each tenancy or lease agreement.
    • follow legislation and good practice when we calculate service charges.
    • review all service charges every year.
    • use the latest available information when we estimate service charges, including taking account of inflation or changes in the price or rate in any contracts.
    • record costs for each estate/scheme/block and review these to check they’re reasonable and accurate.
    • divide costs in a consistent, clear and simple way between the properties which receive that service.


3 - Policy statement

  • Our Service Charge Policy reflects our corporate plan, and our aim to enhance our financial strength so we can deliver our ambitions for service and growth.
  • We want to be open and honest about the types of services we charge for, the way we calculate charges so that they’re fair, how we charge for services, how we allocate costs across multiple properties and what information we give to customers.


4 - Definitions

Service - A service is something delivered to a customer, property, block, scheme, or estate as part of the overall housing package. For example, a grounds maintenance service or the cleaning of communal areas.

Tenancy agreement - The rental contract between SNG and the customer(s) stating all the terms and conditions each party must abide by. The agreement includes a description of what services we can charge for.

Lease agreement - The contract between SNG and the customer(s) stating all the terms and conditions each party must abide by. The agreement includes a description of what services we can charge for, including who is responsible for structural costs. We recharge the costs of services to all leaseholders and shared owners where applicable.

Ground rent - Payments made by a leaseholder to the freeholder, or a superior leaseholder as required under a lease.

Estate - An area including a mix of properties (multiple streets, schemes, blocks) that benefit from a particular service for example, street lighting.

Scheme - A group of properties on an estate or street sharing external common parts. This could include houses and flats. For example, grounds maintenance.

Block - A group of properties sharing internal and external common parts i.e. flats.

Asset - Assets are items (rather than services) that we make a charge for servicing and maintaining. They include things like lifts, flooring, communal windows, communal boilers, internal and external decoration, brickwork, fascia, and soffits.


5 - Policy

A service charge is an amount that a customer needs to pay as a standalone charge, or part of/as well as, their rent. It covers the cost for services, maintenance, and our costs for managing this. In the case of leaseholders, it also covers communal repairs, improvements, external validation fees and buildings insurance.

Each customer’s tenancy or lease agreement defines how we’ll recover and apportion service charges. A service charge can be known as “variable” or “fixed”.

New customers in social rented homes for SHA will be charged fixed service charges and new customers in social rented homes for SNH will be charged variable service charges.

The apportionment will depend on the properties sharing the cost of the service and can be split across estate, scheme, block, and individual unit. This also depends on the terms of the customer’s tenancy or lease.

5.1. Fixed service charge

  • We review fixed service charges every year to ensure they’re as accurate as possible and then they don’t change until the next review.
  • If, at the end of the financial year, the actual cost of delivering the service was higher than the fixed charge, customers won’t have to pay more. But they also won’t get any money back if the actual cost is lower than the fixed charge.

5.2. Variable service charge

  • With a variable service charge, customers pay based on an estimated cost. At the end of the financial year, we compare the actual cost of delivering the service against this estimate.
  • If the actual cost is lower, we’ll credit any difference. If it’s higher, we’ll charge extra.
  • For tenants, we carry forward any difference to the next years estimate and add it on or take it off from those charges.
  • For leaseholders and shared owners, we credit or charge the difference six months after the end of their financial year.

5.3. Service charge items

  • The National Housing Federation’s (NHF) “Service charges: a guide for housing associations” is recognised as the best guidance on what activities and items we can charge for.
  • The guidance is legally robust as it’s based on the principles or rules set by the courts during previous similar legal cases (case law).
  • The guide includes a standard list of chargeable items, and this gives us a consistent framework for how we calculate and charge for services.
  • Our management fee, currently 15%, is also considered a reasonable level by the NHF guidelines and following previous cases where fees have been set through the courts.
  • The management fee we charge leaseholders is based on what’s set out in their lease.
  • There are some regional variations to management fees which are reflected in the Service Charge Procedures.
  • Example of services charged include:
    • Grounds maintenance
    • Cleaning
    • Lighting
    • Lift maintenance
    • Reserve/sinking funds
    • Management fee

5.4. Statements

  • If customers pay a service charge, we’ll send them an annual estimate service charge statement, providing a minimum of one months’ notice before the start of the new charges.
  • If a new customer is due to move in as the new years’ service charge estimate is confirmed, the cutoff date is two months prior to the new year: i.e. if the new year’s charges start on the 1st of April, the cut off is the 1st of February.
  • For customers with variable service charges, we’ll also calculate the actual costs and send them a statement within six months of the end of the financial year.
  • If we’re unable to complete the actual calculation within the six months limit, we will inform our customers using the required Section 20B notice.
  • The estimate and actuals statement will include a reserve/sinking fund statement showing the contributions, expenditure and interest earnt if a fund is in place.
  • We’ll investigate queries about service charge statements on an individual basis.

5.5. The cost of charges for new homes

  • We’ll make sure our service charge estimates for new developments are clear and accurate, including contributions to reserve/sinking funds and depreciation.
  • Customers will have information on all expected costs of their new home before they sign their tenancy or lease agreement.
  • We’ve signed up to the Mayor of London’s Service Charges Charter as it applies to funding received through the Mayor’s Affordable Homes Programme 2021 – 2026. We aim to follow this approach across our properties.

5.6. Limiting increases

  • We want our charges to remain affordable, but we recognise that sometimes the cost of a service can increase significantly for some reason beyond our control. Any such increases are reviewed annually by the Executive Board.

5.7. Disregarding minor costs

  • We won’t charge customers for minor services where the cost of the administration involved in calculating and applying the charge would be higher than the cost of the service.

5.8. Maintaining communal equipment

  • In our rented houses and flats which have their own boiler, the cost of maintaining and servicing these comes from the overall rent we collect, rather than as a separate service charge.
  • So that we charge rental customer’s fairly, wherever they live, we’ll also maintain and service shared boilers in the same way, where they provide the heating for individual households.
  • What this means:
    • We’ll cover the cost of maintaining and servicing any equipment providing heating for individual homes (whether this is via an individual boiler or a communal one).
    • If equipment’s used to heat communal areas, we’ll recover these costs via service charges.
  • We may also apply the same principle of fairness to how we charge for other services.

5.9. Customer consultation and information

  • SNG will consult with customers about new services or changes to services. Sometimes the legislation means we’ll need to consult all affected customers, as per Section 20 of the Landlord and Tenant Act 1985. On other occasions, we’ll do this by involving a representative group of customers rather than everyone who’s affected.
  • If we receive a request to inspect documentation, we will make such information available for inspection as per Section 22 of the Landlord and Tenant Act 1985.

5.10. Validation and insurance

  • Lease agreements specify where we need to engage an external contractor to validate the accounts and provide buildings insurance cover for a scheme and individual homes. In these cases, we’ll charge the leaseholders accordingly.
  • For rent tenancies, buildings insurance is our responsibility, so this is covered by the rent. External validation isn’t required.
  • Please note: all customers are responsible for arranging their own contents insurance.

5.11. Management companies

  • If management companies are contracted, they deliver services to all customers at a scheme, whether they’re renting, shared owners or leaseholders. This can be for services such as grounds maintenance, cleaning, maintaining lifts and looking after communal areas.
  • We manage the quality and cost of these services and charge the cost back to customers as appropriate.

5.12. Reserve/sinking funds and depreciation

  • We’ll charge for “assets” in our homes by either:
    • Spreading the cost of the asset over its useful life (depreciation), or
    • Building up a fund (called a reserve or sinking fund) which is used to pay for replacing the asset at the end of its useful life.
  • Individual tenancy/lease agreements or transfer documents will state whether we can charge for reserves/sinking funds and or depreciation.
  • If an agreement does not allow for a fund, we may consider setting one up if the majority of customers request one.
  • All apportionments will be set up according to the agreement, or fairly apportioned if the agreement is silent.
  • We’ll charge shared owners, leaseholders, and freeholders for reserve/sinking funds in line with the terms of their lease agreements.
  • We won't charge social rent customers for depreciation or a reserve/sinking fund as this is normally covered in the rent, apart from in exceptional cases where an asset is directly linked to a service.
  • We will charge customers in housing for older people, supported or keyworker accommodation who have access to shared communal facilities, a depreciation charge for assets such as communal laundry rooms.

5.13. Ground rent

  • Ground rent is payable under a long lease.
  • Any demand for ground rent must be issued using the prescribed form under Section 166 of the Commonhold and Leasehold Reform Act 2002 and the Landlord and Tenant (Notice of Rent) (England) Regulations 2004.
  • The Leasehold Reform Act (Ground Rents) 2022 came into force on the 30 June 2022, and limits ground rent to a peppercorn on any new residential leases.

5.14. Review

  • If a customer feels we haven’t kept to our Service Charge Policy, they can ask us to review our decision.
  • A manager will carry out this review and we’ll only do this once per case.
  • Customers have a right to apply to the First-tier Tribunal to ask whether a charge, or a proposed charge, is reasonable. This applies to variable service charges only.


6 - Compliance

  • Compliance with this policy and related procedures shall be monitored by the Head of Service in line with the annual service charge cycles, through reviews with the regional Service Charge Manager.
  • Annual validation of shared owners and leaseholder accounts completed by an external contractor. A certificate is produced for each scheme/block and sent to the customer with their annual actuals statement. This process provides ongoing assurance over compliance with the Policy and legislation.


7 - Responsibilities

Chief Financial Officer - Obtain Board approval

Head of Financial Services (Transformation) - Update SNG Service Charge Policy following Board decision

Service Charge Manager - Update SNH Service Charge Procedure

Head of Financial Services - Update SHA Service Charge Procedure

Service Charge Manager - Ensure compliance with this Policy and related procedures

Head of Financial Services - Ensure compliance with this Policy and related procedures

External Contractor - Complete annual validation of shared owner and leaseholder service charge accounts


8 - Equality and diversity

We will apply this policy consistently and fairly and will not discriminate against anyone based on any relevant characteristics, including those set out in the Equality Act 2010.


9 - Legislation and regulation

The legislation listed in this policy is not intended to cover all legislation applicable to this policy. To comply with clause 1.1 of the Regulator of Social Housing’s Governance and Financial Viability Standard, which requires adherence to all relevant law, SNG will take reasonable measures to ensure compliance with all applicable legislation by reviewing policies and procedures and amending them as appropriate. Any queries relating to the applicable legislation should be directed to the policy owner.

  • Landlord and Tenant Act 1985
  • Landlord and Tenant Act 1987
  • Commonhold and Leasehold Reform Act 2002
  • Equality & Diversity Act 2010
  • Building Safety Act 2022
  • Homes and Community Agency (HCA) Service Standards
  • National Housing Federation’s (NHF) “Service charges: a guide for housing associations”
  • Mayor of London’s Service Charges Charter
  • The Leasehold Reform Act (Ground Rents) 2022


10 - Review

This document will be reviewed every three years, or sooner if significant changes occur in the relevant legal or operational landscape.

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