Service charges: What can you pass on to a tenant?
With the introduction of the Good Landlord Act on July 1, 2023, regulations regarding service charges have been further tightened. This step was taken to prevent the misuse of service charges by landlords. In this article, we discuss which service charges you, as an owner, can pass on to the tenant.
What exactly does the term "service charges" include?
Service charges are an addition to the base rent paid monthly by tenants to landlords. These costs are related to the occupancy of the rented property and include:
Cleaning services, such as stairwell cleaning
Window washing
Shared utilities like electricity, gas, and/or water (in the case of block heating, etc.)
Use of curtains (in case of furnished rentals)
Use of furniture (in case of fully furnished rentals)
When entering into a rental agreement, the landlord is required to inform the tenant thoroughly about the applicable service charge rates. These charges are billed monthly as an advance payment in addition to the base rent. Sometimes, service charges are included in the total rent price, known as an all-inclusive rent price.
What is the difference between an advance payment for service charges and an all-inclusive rent price?
With an all-inclusive rent price, the tenant pays a monthly amount to the landlord that includes both the base rent and the service charges. This makes it unclear to the tenant what portion of the total rent pertains to the base rent and what portion to the service charges.
The downside of an all-inclusive rent price is that no separate advance payment for service charges is made, preventing the landlord from sending an annual settlement. Additionally, the landlord cannot adjust the costs, as they are not listed separately. Therefore, if utility costs increase, it is not possible to pass this on to the tenant.
Another aspect of an all-inclusive rent price is that it cannot be indexed. Rent increases can only be applied to the base rent since the base rent amount and the service charges are not specified separately. We strongly advise against charging an all-inclusive rent price and always specifying service charges, including for furnishings and furniture. In another article, we provide more details on including a small amount for these items.
If you pay both rent and service charges monthly, the service charges are an advance for services provided by the landlord. Landlords are now legally required to provide their tenants with an annual breakdown of service charges.
What exactly does a service charge settlement involve?
Annually, the landlord must provide a detailed overview where the costs per service are accurately itemized. These costs must only relate to services associated with the occupancy of the rental property. Maintenance costs for the property, for instance, are not included.
The overview should clearly indicate whether the tenant has paid enough, too much, or too little. Based on this, the tenant must either pay the outstanding amount or receive a refund from the landlord.
If a tenant does not receive an annual overview, receives it late, or disagrees with the advance payment, the landlord usually has to provide the settlement and/or clarification initially. If no agreement is reached between the landlord and tenant, there are two options:
For non-liberalized rental properties, the landlord and tenant can call on the Rent Tribunal to decide on the advance payment. The Rent Tribunal bases its decision on the comprehensive Service Charges Policy Book.
For free sector rental properties, the landlord and tenant can refer to a competent judge to rule on the advance payment. The Rent Tribunal does not make decisions but only provides advice on the advance payment for free sector rental properties.
In short, it is essential as a landlord to inform your tenant about the monthly service charges (advance) and the associated services before signing the rental agreement. In 2023, more than 3,800 protests were filed against excessive service charges, and recent rulings show that in 90% of cases, the tenant was upheld because unjustified service charges were billed.
The advance payment and services are documented in the rental agreement. The landlord is required to prepare an annual detailed service charge settlement, which must include at least the following.
The costs per service (category) for the past year
The amount paid by the tenant as an advance payment (and any difference)
The amount the tenant must pay additionally or receive as a refund
Conclusion
It is important to know which costs can be passed on to the tenant before putting the property up for rent and to send the tenant an annual overview of the actual costs incurred. In the case of furnishings and furniture, it is not necessary to send an annual settlement. However, it is important to always have the costs for these items on hand. We will discuss this further in another article.