Increasingly, tenants are receiving separate bills for the various utility and service charges from landlords and building management companies. It is now all too easy to get lost in the “jungle” of additional charges, flat rates and fees. In this article, we explain what you can expect to pay and illustrate which additional charges are legal using examples.
- Utility and service charges “are trending upwards”!
- Applicable utility and service charges
- What does the law say?
- Permissible and unlawful service charges
- List the service charges in the contract
- Payments on account are the popular choice
- Annual service charge statement: more expensive than payments on account?
- Annual service charge statement: your right to transparency
- Service charges are often a bone of contention
What are utility and service charges for rental apartments? Utility and service charges are often described as the “second rent” because tenants must pay them in addition to the contractually agreed net rent. These costs may vary enormously depending on the size of an apartment (heated area!), its age, condition and standard of finish. It is therefore difficult to give a blanket answer as to which service charges are fair and reasonable. Ultimately, the differences from building to building, as well as the demand for heating energy, are simply too great.
The only certainty is that, these days, numerous different items are typically listed under the heading “Service charges.” In any case, the resulting bottom-line costs are often higher than first assumed by many tenants. In other words, utility and service charges are far from a “trifling matter”.
Utility and service charges “are trending upwards”!
Whereas in the past many landlords simply charged a flat rate per month as a service charge, these days tenants can expect to receive a detailed monthly statement. Even experts often struggle to navigate this “jungle” of heating bills, energy costs, recurring fees and service costs. In many cases, the net rent might seem quite reasonable at first glance. However, the total costs charged to the tenant on a pro rata basis are sometimes much higher than expected.
Applicable utility and service charges
Is the outsourcing of service charges making housing more expensive? Presumably yes, however there are probably several factors at play.
Service charges have been trending upwards in recent years.Fabian Gloor, a lawyer at the Swiss Tenants’ Association (ASLOCA)
In particular, newer or recently renovated buildings are being equipped with growing amounts of technology. This often includes complex systems and installations – for example, modern energy and heating technology, ventilation systems, photovoltaics, new household appliances such as washing machines and tumble dryers, lift systems, shading systems, building automation, etc. In commercial buildings, the amount of technology is often even higher (security and alarm systems, complex cabling, etc.).
Some landlords outsource all these costs and services by concluding service contracts with third parties – for example, for the maintenance of heating systems, heat pumps, ventilation systems and lifts. “This can quickly add up on the bottom line,” says lawyer Fabian Gloor. Other factors also play a role in actual practice. In the past, it was not uncommon for a tenant in the building to do certain maintenance tasks (as a “part-time job”, so to speak). However, many building management firms now delegate these services to professional building maintenance companies – at a corresponding cost.
So what does all this mean? Higher standards, greater convenience, professional management, but also more technology and stricter building regulations have all increased the ancillary accommodation costs for tenants.
What does the law say?
Both building owners and tenants are well advised to check the letter of the law at an early stage. For example, what are service charges anyway? Literally, the law states:
Service charges are the payment for services rendered by the landlord or a third party in connection with the use of the property.
Terms such as “heating costs” and “operating costs” appear in many tenancy agreements. Landlords are indeed entitled to charge tenants for these expenses separately, including heating and hot water, the general electricity supply to the building and the cleaning of stairwells.
The flip side of this coin, however, is that expenses that are not related to the use of the building may not be billed as service charges. Costs incurred by the landlord for bank mortgages, repayments, depreciation of building components, property taxes or the premiums for the cantonal building insurance may explicitly not be passed on to tenants as service charges.
Permissible service charges
- Heating and hot water costs (purchase of energy)
- Service subscriptions for heating, lifts or other devices
- Water or waste water
- Refuse collection
- Janitorial services (janitor’s salary, general cleaning work, maintenance of gardens and surroundings, etc.)
- Stairwell cleaning
- Shared electricity
- Washing machines (only electricity and water consumption)
- TV and cable connection fees
- Snow clearance/winter service
- Administrative costs, administrative fees (must be directly related to the service charges)
Unlawful service charges
- Repairs to heating systems, washing machines, lifts or other parts of the building
- Spare parts
- Investments, replacement of components and equipment, etc.
- Conversions, renovations
- Replanting or redesign of gardens
- Property taxes, building insurance premiums
- In general, any public charges that are not directly related to the cost of operating the property (e.g. contributions to road development).
List the service charges in the contract
An important point is that building owners may only charge for ongoing costs (i.e. charge them to the tenant on a pro rata basis) if these items are listed individually in the tenancy agreement.
Overly vague or general formulations such as “other ancillary costs” or “general costs” are not permissible. Caution: if the landlord wants to charge for additional items, such charges are only legally enforceable if the tenancy agreement contains a corresponding amendment. The amendment must be made correctly using the official form in compliance with the statutory deadlines (to the next termination date).
Payments on account are the popular choice
Landlords can choose whether to invoice the service charges as a lump sum or to arrange payments on account. With payments on account, the tenant pays an estimated amount in advance. A definitive statement listing the actual costs – such as the tenant’s actual consumption of heating energy and hot water – is then issued at a later date.
In the case of payments on account, the building’s managers or owners are required to draw up an annual statement. For example, an accounting period from 1 July to 30 June of the following year is a popular choice.
Annual service charge statement: more expensive than payments on account?
It is debatable whether tenants are better off making payments on account. After all, many people don’t like the idea of suddenly facing significant additional expenses. And are such additional payments even legal? This question has already occupied many Swiss courts. The various tenants’ associations would like to see them capped at 15 or 20 per cent. However, this view has not prevailed in court. Therefore, tenants have to live with the fact that their actual bill – for whatever reason – might one day turn out to be higher.
It is best to find out the likely costs before signing the contract. For example, ask to see the average actual service charges over the previous two to three years.
Annual service charge statement: your right to transparency
Service charges must be transparent, objective and properly documented. Of course, building management companies are not in the habit of submitting all supporting documents on their own initiative. However, the following rule applies: tenants have the right to demand to see the corresponding documents (receipts for the service charges incurred).
“We also recommend that tenants ask to see the concluded service contracts,” says lawyer Fabian Gloor. The reason for this is that, due to the increasing number of service contracts, it is important to check whether or not they actually contain chargeable items. For example, if the building management concludes a repair contract for the ventilation system, this would not be acceptable as a service charge. Strictly speaking, maintenance and service expenses can be forwarded as service charges. On the other hand, repairs to the equipment itself and the cost of major spare parts, etc., may not be included as service charges.
The tenants’ right to inspect the paperwork applies as a general rule – regardless of whether the building management demands payments on account or as a lump sum. It is often a good idea to compare the costs with those for other apartments (costs per square metre) or simply to ask whether the charges are permissible. For example, if (for no apparent reason) the electricity or water costs are suddenly significantly higher than in the previous year, it would be worth checking the reasoning behind the increase. The same applies to the charges for heating or energy – for example, if there is a sudden spike in heating costs following a mild winter.
Service charges are often a bone of contention
It is clear that the building management also incurs expenses associated with the service charges (reading tenants’ consumption data, allocating charges to apartments on the basis of a specific distribution key, administration costs, etc.). In principle, the management can also pass on these costs or expenses to the tenant – the only question is to what extent. One criterion for this is the actual expenditure and the customary local rates. The corresponding ordinance states that these costs may be charged “according to expenditure or within the scope of the customary rates”. Lawyers who tend to represent the building owners in such matters cite permissible leeway of about three to five per cent of the incurred utility and service charges. However, the Swiss Tenants’ Association states in a leaflet that no more than about two to three per cent should be accepted.
Conclusion: For practical purposes, it would no doubt make life easier for both parties if they can agree in advance on all ancillary costs that will be levied as service charges. Furthermore, they should also reach an agreement on a reasonable percentage to be applied to the service charge statement as an administration fee.