Service Charge Arrears: Rights & Recovery Guide
A comprehensive guide to service charge arrears, covering the service charge arrears time limit, your rights when withholding service charge payments, what to do if your service charge is too high, and how managing agents recover outstanding balances. Understand the legal framework, the 18-month rule, and how unfair service charges can be challenged.
What Are Service Charge Arrears?
Service charge arrears arise when a leaseholder fails to pay the service charge demanded by their freeholder or managing agent within the timeframe specified in the lease. The service charge itself is a contribution towards the costs of managing, maintaining, and insuring a building and its communal areas. When these contributions go unpaid, the resulting arrears create a shortfall in the building's budget and can have serious consequences for both the individual leaseholder and the wider block.
Arrears can accumulate for a variety of reasons, from genuine financial hardship to deliberate withholding because a leaseholder believes the charges are unfair or unreasonable. Regardless of the reason, unpaid service charges remain a debt secured against the lease, and the freeholder or managing agent has legal tools available to pursue recovery. Understanding how service charge arrears work, the time limits involved, and your rights as a leaseholder is essential for protecting both your home and your finances.
This guide explains the legal framework, the recovery process, and the options available to leaseholders who find themselves in arrears or who wish to challenge charges they consider to be unreasonable. For a broader overview of how service charges work, see our service charge guide.
Why Leaseholders Fall Into Arrears
There are several common reasons why leaseholders fall behind on their service charge payments. Understanding these causes is important for managing agents and freeholders who want to minimise arrears, and for leaseholders who want to know their options when they are struggling to pay.
High Charges
One of the most common triggers for arrears is a leaseholder who feels their service charge is too high. Significant increases, particularly those driven by major works, insurance premium rises, or contributions to a reserve fund, can leave leaseholders struggling to pay. When leaseholders ask what is a reasonable increase in service charge, the answer depends on the actual costs incurred, but a sudden or unexplained jump in charges is often the catalyst for non-payment.
Disputes Over Charges
Some leaseholders withhold payment because they believe the charges are unfair or that the work carried out does not justify the cost. Questions like can I refuse to pay service charge property obligations arise when leaseholders feel that the managing agent or freeholder has not acted in their interests. In these cases, the leaseholder may have a legitimate service charge dispute, but withholding payment without following the correct legal process carries significant risks.
Financial Hardship
Changes in personal circumstances, such as job loss, illness, or increased living costs, can leave leaseholders unable to meet their service charge obligations. Unlike a mortgage, where lenders may offer forbearance, service charge arrears accumulate as a debt and the managing agent is under an obligation to the building as a whole to pursue recovery. Leaseholders experiencing hardship should communicate with their managing agent as early as possible to explore payment plan options.
Poor Communication
In some cases, arrears arise because demands have not been properly served, contact details are out of date, or the leaseholder has not received adequate information about what the charges cover. Good communication between the managing agent and leaseholders is essential for minimising arrears. A clear service charge budget and transparent accounting reduce the likelihood of disputes and non-payment.
Legal Framework for Recovering Service Charge Arrears
The recovery of service charge arrears is governed by a combination of lease terms and statutory provisions. The most important legislation is the Landlord and Tenant Act 1985, which sets out the rules on reasonableness, consultation, and demand requirements for service charges. Understanding this legal framework is critical for both leaseholders and managing agents.
Landlord and Tenant Act 1985
The Landlord and Tenant Act 1985 is the primary statute governing residential service charges in England and Wales. Section 18 defines a service charge, Section 19 requires that costs must be reasonably incurred and that services or works must be carried out to a reasonable standard, and Section 20 sets out the consultation requirements for major works. The service charge law guide provides a detailed overview of these provisions and how they protect leaseholders.
County Court Proceedings
When a leaseholder fails to pay their service charge, the freeholder or managing agent can pursue the debt through the county court. This typically begins with a letter before action, followed by a formal claim if the arrears remain unpaid. A successful claim results in a county court judgment (CCJ) against the leaseholder, which can be enforced through various means including attachment of earnings, charging orders, and in some cases, bailiff action. A CCJ also appears on the leaseholder's credit record for six years.
First-tier Tribunal (Property Chamber)
The First-tier Tribunal has jurisdiction to determine whether service charges are reasonable and payable under Section 27A of the Landlord and Tenant Act 1985. Both leaseholders and landlords can apply to the Tribunal. This is an important route for leaseholders who believe they are being asked to pay unfair service charges, and for managing agents who want a binding determination that the charges are lawfully due before pursuing county court proceedings.
Time Limits for Service Charge Recovery
One of the most frequently searched questions about service charge arrears relates to the service charge arrears time limit. There are two critical time limits that leaseholders and managing agents must understand: the six-year limitation period and the 18-month rule under Section 20B.
The Six-Year Limitation Period
Under the Limitation Act 1980, a freeholder or managing agent has six years from the date a service charge debt falls due to bring a claim through the county court. If no claim is issued within this period, the debt becomes statute-barred and is no longer recoverable through the courts. This six-year rule applies to each individual demand separately, so arrears from different years may have different limitation dates. The service charge arrears time limit of six years is a hard deadline that cannot be extended.
The 18-Month Rule Under Section 20B
Section 20B of the Landlord and Tenant Act 1985 imposes a separate and more restrictive time limit. It provides that a landlord cannot recover service charge costs from leaseholders unless a demand for payment is made within 18 months of the costs being incurred. If the landlord fails to issue a demand within this window, the costs cannot be passed on to leaseholders at all, unless the landlord notified the leaseholder in writing within the 18-month period that the costs had been incurred and that a demand would follow. This rule protects leaseholders from being presented with large, unexpected historic charges and is one of the most important statutory protections available.
Managing agents must have robust systems in place to ensure that demands are issued within both of these time limits. Failure to comply with the 18-month rule under Section 20B, in particular, can result in significant costs being irrecoverable, which harms the building's finances and penalises compliant leaseholders who have paid their share on time.
Can You Withhold Service Charges?
The question of withholding service charge payments is one of the most common concerns raised by leaseholders. While there are limited circumstances in which withholding may be justified, it is important to understand both when you can and when you cannot withhold, and the risks of doing so.
When You May Be Able to Withhold
There are narrow circumstances where withholding service charge payments may be defensible. If the landlord has failed to provide a summary of costs within the timeframe required by Section 21 of the Landlord and Tenant Act 1985, leaseholders may withhold payment until the summary is provided. Similarly, if a demand does not comply with the requirements of the service charge law (for example, it does not include the landlord's name and address or the required information about the leaseholder's rights to challenge the charges), the demand may not be valid and the charge may not yet be payable.
When You Cannot Withhold
Simply believing that the service charge is too high or that the services provided are poor does not give you the right to withhold payment. The correct route for challenging unfair service charges is through the First-tier Tribunal, not through unilateral non-payment. Until the Tribunal determines that the charges are unreasonable, the full amount demanded remains payable under the terms of your lease, and the landlord or managing agent is entitled to pursue the debt.
Risks of Withholding
The risks of withholding service charge payments without proper legal authority are significant. Unpaid charges accrue as a debt, and the freeholder can pursue you through the county court for recovery. A county court judgment will affect your credit rating and your ability to remortgage or sell your property. In the most extreme cases, persistent non-payment of service charge arrears can give the freeholder grounds to commence forfeiture proceedings, potentially leading to the loss of your lease. If you are considering withholding, seek professional advice from a service charge dispute specialist first.
How Managing Agents Handle Service Charge Arrears
An effective arrears management process is essential for protecting the financial health of the building. At Block, we follow a structured and proportionate approach to recovering service charge arrears while treating all leaseholders fairly.
- Prompt and accurate issuing of service charge demands that comply with all statutory requirements
- Clear payment terms and multiple payment options to make it easy for leaseholders to pay on time
- Early intervention with reminder letters when payments are overdue, giving leaseholders the opportunity to respond
- Offer of payment plans for leaseholders experiencing genuine financial hardship
- Formal letter before action where arrears remain unpaid after initial contact
- Referral to county court proceedings as a last resort, with full transparency on costs
- Regular reporting to directors and freeholders on arrears levels and recovery progress
- Guidance on the correct procedures for challenging charges through the First-tier Tribunal
Our goal is always to resolve arrears without the need for court action. However, where a leaseholder refuses to engage or to pay, we have the expertise and processes in place to pursue recovery through the courts on behalf of the building. For a detailed overview of our approach to service charge administration, see our service charge guide.
Impact of Arrears on the Block
Service charge arrears do not only affect the individual leaseholder who has failed to pay. They have a direct and often damaging impact on the entire building and on the leaseholders who have paid their share on time. Understanding this wider impact is important for appreciating why arrears recovery is taken seriously.
Budget Shortfalls
The service charge budget is based on anticipated income from all leaseholders. When one or more leaseholders fall into arrears, the budget is underfunded. This can mean that essential works are delayed, routine maintenance is deferred, or the reserve fund is depleted to cover the shortfall. In the worst cases, the managing agent may have to seek additional contributions from those leaseholders who are already paying, which is both unfair and divisive.
Deferred Maintenance
When cash flow is restricted by unpaid service charges, maintenance that should be carried out promptly may have to be postponed. This can lead to the deterioration of the building fabric, increased long-term repair costs, and a reduction in the value and desirability of the flats within the block. A building that is not properly maintained affects every leaseholder, regardless of whether they have paid their charges.
Impact on Sales and Mortgage Applications
High levels of arrears across a building can deter prospective buyers and concern mortgage lenders. When a leaseholder sells their flat, the buyer's solicitor will request management information that includes details of arrears levels in the block. Significant arrears may raise red flags about the building's financial management and make it harder for leaseholders to sell their properties at a fair price.
Frequently Asked Questions About Service Charge Arrears
Can I refuse to pay my service charge?
You should not refuse to pay your service charge without first taking proper legal steps. Service charges are a contractual obligation under your lease, and non-payment can lead to county court proceedings, a county court judgment against you, and in the most serious cases, forfeiture of your lease. However, if you believe the charges are unreasonable or have not been properly demanded, you have the right to challenge them through the First-tier Tribunal (Property Chamber). The Tribunal can determine whether the charges are reasonable and payable. Until you have a Tribunal decision in your favour, the safest course is to pay the disputed amount and challenge it formally rather than withholding payment unilaterally.
What happens if you don't pay management fees?
If you do not pay your service charge or management fees, the managing agent or freeholder can pursue the debt through the county court. A successful claim will result in a county court judgment (CCJ) being registered against you, which damages your credit rating and may affect your ability to obtain a mortgage or other credit. Beyond this, unpaid service charges can accumulate as a debt secured against your lease. In extreme cases, if arrears are substantial and persistent, the freeholder may apply for forfeiture of the lease, which could mean losing your home. The arrears also affect other leaseholders in the building, as a shortfall in service charge income can delay essential maintenance or force the managing agent to dip into reserve funds.
What is the 6 month rule for service charge accounts?
The six-month rule relates to Section 21 of the Landlord and Tenant Act 1985, which requires landlords to provide leaseholders with a summary of costs incurred in connection with the service charge within six months of the end of the accounting period. If the landlord fails to provide this summary within the required timeframe, leaseholders may withhold payment of the service charge until the summary is provided. This provision is designed to ensure transparency and give leaseholders the ability to verify that the charges they are being asked to pay reflect actual expenditure. The summary must be certified by a qualified accountant where the building contains more than four dwellings.
What is the 18 month rule for service charges?
The 18-month rule is set out in Section 20B of the Landlord and Tenant Act 1985. It provides that a landlord cannot recover service charge costs from leaseholders unless a demand for payment is made within 18 months of the costs being incurred. If the landlord fails to demand payment within this period, the costs cannot be passed on to leaseholders. The only exception is where the landlord has notified the leaseholder in writing within the 18-month period that the costs have been incurred and that the leaseholder will be required to contribute. This rule exists to protect leaseholders from being presented with unexpected historic charges and to encourage landlords to demand service charges promptly.
How to challenge unreasonable service charges?
To challenge unreasonable service charges, you can apply to the First-tier Tribunal (Property Chamber) under Section 27A of the Landlord and Tenant Act 1985 for a determination of whether the charges are reasonable and payable. Before making an application, you should request a summary of the costs and inspect the supporting invoices and receipts, which is your right under Sections 21 and 22 of the Act. You should also write to your managing agent or landlord setting out your concerns and giving them the opportunity to respond. If the matter cannot be resolved informally, the Tribunal will examine whether the costs were reasonably incurred, whether the standard of work or services is reasonable, and whether the charges comply with the terms of the lease. The Tribunal process is designed to be accessible and does not usually require legal representation.
What is a reasonable increase in service charge?
There is no fixed percentage or amount that constitutes a reasonable increase in service charge. Reasonableness depends on the actual costs incurred in managing and maintaining the building. An increase may be justified by rising insurance premiums, essential repair works, increased utility costs, new regulatory requirements, or contributions to a reserve fund. Under Section 19 of the Landlord and Tenant Act 1985, service charge costs must be reasonably incurred and any works or services must be carried out to a reasonable standard. If a service charge increase seems disproportionate, leaseholders should request a breakdown of the costs and compare them with the previous year. If the increase cannot be justified, leaseholders have the right to apply to the First-tier Tribunal for a determination on reasonableness.
Need Help With Service Charge Arrears?
Whether you are a leaseholder facing service charge arrears and want to understand your rights, a director seeking advice on recovering unpaid service charges, or you need help challenging unfair service charges through the First-tier Tribunal, Block is here to help. Our experienced team manages service charge collection and arrears recovery across hundreds of buildings nationwide.