For many property owners, the annual service charge statement is a task that often gets put off. Not because individual items are inherently difficult to understand, but because many questions tend to arise at once: Which costs can actually be passed on to tenants? What documents do you need? And how do you make sure the statement is complete and correct?

Particularly with let flats or self-managed rental properties, preparing this often takes much longer than originally planned. Along with figures and invoices, you also have to consider deadlines, apportionment keys and legal guidelines.

The good news is that with a clear process, you can prepare the statement in three simple steps. Or even easier: we can handle your service charge statement for you, simply and securely, for just £79.

The difference between operating costs and ancillary costs

Before explaining the service charge statement, it is helpful to clarify the difference between operating costs and ancillary costs. Although often used interchangeably, the two terms have different meanings. While "operating costs" (Betriebskosten) has a specific legal definition in Germany linked to the Operating Costs Ordinance (Betriebskostenverordnung), "ancillary costs" (Nebenkosten) lacks a statutory definition.

For instance, while operating costs take the specific circumstances of residential tenancies into account, they do not cover the unique aspects of commercial properties.

The German Facility Management Association (GEFMA) has published an approach to separate operating costs and ancillary costs: costs that by definition are operating costs and whose transfer is contractually agreed are:

• operating costs

• ancillary costs

Operating costs: costs that by definition are operating costs, but whose transfer is not contractually agreed are:

• operating costs

• not ancillary costs

Ancillary costs: costs that by definition are not operating costs, but whose transfer is contractually agreed are:

• not operating costs

• ancillary costs

What exactly is a service charge statement?

A service charge statement shows tenants which operating costs were incurred during a billing period and what share of those costs applies to their flat. It is therefore not the same as the annual statement for a homeowners' association.

The difference between an annual HOA statement and a tenant service charge statement is straightforward: the annual statement is for the property owners within the association, whereas the service charge statement is for landlords and their tenants.

This is relevant, for example, for let flats within a homeowners' association, self-managed rental properties or multi-family buildings with several tenants. Not all costs can be automatically passed on.

Generally, only operating costs defined under the Operating Costs Ordinance are recoverable.[1] These typically include:

• heating costs

• water costs

• waste disposal

• building cleaning

• caretaker services

• gardening

• insurance

• communal electricity

Non-recoverable costs, however, include:

• repairs

• maintenance

• management fees

• bank charges

• maintenance reserves

Preparing your service charge statement in three steps

Many mistakes do not happen with individual figures but during the process itself. Missing documents, incorrect apportionment keys or missed deadlines can quickly lead to extra work and queries.

But you can keep things simple by taking a structured approach to preparing your statement.

Step 1: Gather all required documents

The process goes much smoother when you have all the necessary documents to hand first. This includes:

• invoices from service providers

• insurance premiums

• heating bills

• water bills

• waste charges

• caretaker costs

• maintenance contracts

• meter readings

• tenancy contracts with apportionment keys

Completeness is key here. Missing receipts often mean that costs are forgotten or distributed incorrectly later on.

Tip: keep a central folder for all property-related documents, whether digital or in a classic ring binder. If you collect and file invoices and contracts throughout the year, you will save yourself a lot of time.

Step 2: Allocate recoverable costs correctly

The next step is to distribute the recoverable costs among the individual tenants. This is done using the apportionment key, which is usually defined in the tenancy agreement.

Common apportionment keys are:

• living space

• number of occupants

• consumption

• number of flats

A simple example:

A rental building incurs annual waste costs of:

• €1,200

The total living space is:

• 600 m²

One flat is:

• 75 m²

The calculation is: 75 ÷ 600 × €1,200 = €150 share of waste costs

However, different rules apply depending on the type of cost. For example, heating and hot water costs must be billed based partly on actual consumption.[2] This can quickly make things complex, especially with multiple apportionment keys or mixed-use properties.

Tip: if you use different apportionment keys, a simple overview table helps. This makes it easy to track which costs were distributed by area, consumption or other criteria.

Step 3: Check your statement and watch the deadlines

Before sending out the service charge statement, you should check it carefully. Key questions to ask:

• Are all recoverable costs included?

• Are the apportionment keys correct?

• Have advance payments been taken into account correctly?

• Are the billing periods complete?

• Are any invoices or receipts missing?

Another important point: tenants must receive their service charge statement no later than twelve months after the end of the billing period.[3] If you miss this deadline, you usually cannot claim any back payments. Preparing early and systematically is well worth the effort.

Tip: many owners start preparing their statements too late. It is much easier to check documents and costs regularly during the year instead of trying to pull everything together just before the deadline.

Using a service: the easiest way to prepare your statement

Many owners only realise how much admin is involved when they start writing the service charge statement. Alongside figures and receipts, you have to carefully manage apportionment keys, deadlines and legal requirements.

This can become time-consuming, especially with multiple units, let flats or complex properties. If you want to avoid wading through invoices, spreadsheets and deadlines every year, you can simply use our service.

At Theo, we prepare your service charge statements quickly and transparently for just £79. You simply provide us with the necessary documents, and we take care of the secure, legally compliant preparation in line with data protection rules.

Sources

[1] German Federal Ministry of Justice. Operating Costs Ordinance (BetrKV). Gesetze im Internet. https://www.gesetze-im-internet.de/betrkv/

[2] German Federal Ministry of Justice. Heating Costs Ordinance. Gesetze im Internet. https://www.gesetze-im-internet.de/heizkostenv/

[3] German Federal Ministry of Justice. Civil Code (BGB) Section 556 Agreements on operating costs. Gesetze im Internet. https://www.gesetze-im-internet.de/bgb/__556.html