Leasehold Guide
Leasehold Service Charges Explained
A service charge is the money leaseholders pay towards running the building they share. This guide covers what it can be spent on, how it is set, and what to do if it looks wrong.
What a service charge covers
The service charge funds the costs of looking after everything outside the four walls of an individual flat: the structure and roof, communal hallways and stairs, lighting, lifts, door entry, grounds, buildings insurance, fire safety works and the cost of managing all of it.
What can be recovered is not a matter of custom — it is set by the lease. If a cost is not covered by the service charge clauses in your lease, it cannot be charged to leaseholders through the service charge, however reasonable it might seem.
Costs must also be reasonably incurred, and any work or service must be of a reasonable standard. That test comes from the Landlord and Tenant Act 1985 and applies regardless of what the lease says.
- Communal repairs, cleaning, gardening and lighting
- Buildings insurance for the structure and communal areas
- Lift, pump, alarm and door entry maintenance contracts
- Health and safety and fire risk assessments and resulting works
- The managing agent's fee and accountancy costs
- Contributions to a reserve fund for future major works, where the lease allows
How the charge is calculated
Each year the freeholder or managing agent prepares a budget: an estimate of what running the building will cost over the coming year, line by line. That total is divided between the flats using the apportionment in the lease — often an equal share, sometimes by floor area or rateable value.
Leaseholders are then demanded their share, usually in two instalments. At the end of the year the actual spend is compared against the budget, and the difference is either credited back or charged as a balancing payment.
A reserve fund (also called a sinking fund) collects money gradually for predictable large costs such as roof renewal or redecoration, so those costs do not land as a single unaffordable bill. Whether one is allowed, and how it can be used, again depends on the lease.
Service charge questions
Can I refuse to pay a service charge I think is too high?
Withholding payment puts you in breach of the lease and can lead to interest, costs and legal action. The safer route is to pay and challenge: request the information you are entitled to, raise it formally in writing, and if it is not resolved, apply to the First-tier Tribunal (Property Chamber) for a determination on reasonableness.
What information am I entitled to see?
You can ask for a written summary of the costs behind the service charge and, having received it, inspect the supporting invoices and receipts. A reasonable managing agent will share the budget, accounts and major contracts without you having to push.
Is ground rent part of the service charge?
No. Ground rent is a separate payment to the freeholder for the land, and is demanded separately. It has nothing to do with the cost of running the building.
There is a time limit on charging me, isn't there?
Yes. If a cost is demanded more than 18 months after it was incurred, and you were not notified in writing within that period that the cost had been incurred and would be charged, it generally cannot be recovered.
Related pages
- Accounting for Service ChargesHow service charge accounts work: trust monies, budgets versus actuals, year-end certification, reserve funds, and how service charge accounts differ from company accounts.
- Section 20 ConsultationSection 20 of the Landlord and Tenant Act 1985 sets out consultation for major works. Learn the £250 and £100 thresholds, the notice stages and what happens without consultation.
- What Is Estate ManagementWhat residential estate management means, what a specialist estate management company does day to day, and how it differs from lettings and sales.
Service charge questions about your building?
If your budget or year-end accounts do not add up, we are happy to take a look and explain what we see.