Understanding Maintenance Charges

Maintenance charges are one of those insidious fees that seep in and inflate what seemed like a reasonable price until then. Often, new home buyers are caught unawares as they get lured by the attractive figures that builders cleverly promise on new houses and projects. But those numbers change considerably once relevant approvals, infrastructure, and other facilities are set in place as they need to be maintained at a separate cost. These additions drive up the expenses that ultimately go out from the home buyer’s pocket.

We have compiled a handy guide for you to understand the ins and outs of maintenance charges, and prepare yourself if you are a first time home buyer.

What do maintenance charges cover?

Maintenance charges essentially encompass all the basic infrastructure and amenities like parks, elevators, emergency exits, fire and safety, parking facilities, common areas, and centrally controlled services like electricity and water among others.

Initially, the upkeep of these facilities is the responsibility of the builder who collects the maintenance fee from the residents. Once a residents association takes shape, this duty falls upon them, and they are allowed to change or introduce new rules for consistently improving maintenance.

In the absence of an association or a society, the builder continues to be in charge of maintenance.

Are there any laws that regulate maintenance charges?

The Real Estate Regulatory Authority (RERA) stipulates that the builder must sign a maintenance agreement, which mentions the fees, payment schedule, and a breakdown of costs for utmost transparency. But apart from that, there are no clear rules developed by any state for builders with the exception of Maharashtra. This is the only state that lays down a clear set of rules for builders and delineates what home buyers and owners can expect when they buy property through its Maharashtra Ownership of Flat Act brought out in 1963.

How can maintenance charges be broken down?

Usually, maintenance fees are charged on a per flat or per square foot basis. Service charges like housekeeping, cleaning, and usage of equipment, as well as the expenses required for repair and upkeep of common facilities like elevators, are divided equally among the flats. Water and electricity charges would be as per the consumption of each flat.

Interest-Free Maintenance Security (IFMS) charges

IFMS is a mandatory lump sum that the home buyer pays the builder who reserves it in a separate account until a residents association is formed. Following that, the builder is expected to transfer the total amount to the association for maintenance expenditures. The system is useful in case of unprecedented breakdowns in facilities or for planned future developments like park extensions or tightening security.

Some developers collect a sinking fund in addition to the IFMS making a distinction between the two. A sinking fund is an amount that homeowners allocate for emergencies and repairs while the IFMS, according to the developers, gets used up in meeting daily and recurring maintenance expenses like small repairs and contractors’ fees. However, there is a lot of grey area, and opinions are divided, which has prompted real estate industry experts to call for doing away with the sinking fund entirely.

What about taxes?

Before the introduction of GST, a service tax of 15% plus a Swachh Bharat tax of 0.5% and a non-agricultural tax of 0.5% was levied on maintenance charges. With the coming of GST, the tax rate has gone up to 18%.