Service charge calculation modelling overview
In an ideal world, social landlords would all have a clear service charge setting policy, developed in consultation with tenants and leaseholders. Service charges are, however, based on the actual cost of providing each service plus a fee to cover the associated administrative costs, and a balance is always struck between the levels of service provision, the cost of these services, and how far current and prospective tenants can afford them. Typically, each resident is provided with an annual breakdown of their service charges. For existing residents, a schedule is provided towards the end of the financial year (which may differ between housing organisations), advising them of their new service charge with effect from the start of the next year. Similarly, for all new tenants, a full schedule of their service charges is provided at the beginning of their tenancy. These schedules are usually an estimate - a forecast of how much the landlord thinks it will cost them to provide the services during the year - and are based on analysis of spending in previous years, estimating the increase due to inflation and adding in any further increases or decreases in spending that are known. At the end of every financial year, a comparison is performed of how much it actually cost to provide the services against the original estimate. For tenants, any surplus or deficit is simply carried forward and included in the service charge for the following year i.e. a surplus will be used to reduce the service charge; a deficit will increase it. In contrast, leaseholders have the option to claim back any surplus, or they may choose to leave it on their account to offset future charges. In deficit situations, a separate invoice would be issued to leaseholders for the outstanding amount.
When deriving service charge estimates for a future period, any number of calculation models may be created to reflect different scenarios of possible service charge increases. These can be applied in advance to assess the projected revenue outcome and likely impact of accepting the proposals, with the results being maintained in parallel for each model. The current and projected uplift values are then displayed in summary for comparative purposes and can also be exported to allow further detailed analysis. When defining a new model, service charge figures can be increased by a combination of percentage and fixed value; the end user can also specify an upper limit, beyond which an individual item cannot be increased further. For the range of cost elements that are included in a calculation model, the end user has complete flexibility over the specific values by which the associated charges are inflated. For example, the cost of grounds maintenance and communal cleaning may have increased by 3%, whereas the cost of maintaining the door entry system may be unchanged. By selecting different cost element subsets, common uplift parameters can be applied en bloc. Furthermore, it is also possible to override the calculated results on an individual cost element basis, to take account of any influencing factors. As all calculation results and override figures are stored separately, it is easy to revert back to the derived values, if required.
Separate help articles have been created for each key aspect of service charge calculation modelling, including: