Understanding Service Charges on Leasehold Flats
A comprehensive guide to service charges for leaseholders in England and Wales. Learn how service charges are calculated, what a service charge includes, your rights under service charge law UK, and how to go about challenging service charges you believe are unreasonable. Whether you own a flat in a small conversion or a large purpose-built block, this guide explains everything you need to know.
What Is a Service Charge?
A service charge is a payment made by leaseholders to the freeholder or managing agent to cover the costs of maintaining and managing a building and its communal areas. If you own a leasehold flat, you will almost certainly pay a service charge as a condition of your lease. The charge funds the day-to-day running of the building, planned maintenance, statutory compliance, insurance, and professional management.
The legal definition of a service charge is set out in Section 18 of the Landlord and Tenant Act 1985. It defines a service charge as an amount payable by a tenant as part of, or in addition to, rent which is payable for services, repairs, maintenance, improvements, insurance, or the landlord's costs of management, and the whole or part of which varies according to the relevant costs.
Understanding what is a reasonable service charge on a flat starts with understanding what the charge is designed to cover, how it is calculated, and what legal protections exist to ensure the charges are fair. This guide covers all of these areas in detail, drawing on the key provisions of service charge law UK legislation.
How Is the Service Charge Calculated?
How is service charge calculated is one of the most common questions leaseholders ask. The process involves two stages: first, the managing agent or freeholder prepares a budget estimating the total cost of running and maintaining the building for the year ahead; second, that total cost is divided between leaseholders according to the apportionment method specified in each lease.
The apportionment method varies from building to building. Some leases divide costs equally between all units, while others use a percentage or fraction based on the size, floor area, or rateable value of each flat. In some buildings, the apportionment differs depending on the type of cost; for example, lift maintenance may only be charged to upper-floor flats. The lease is the governing document, and the managing agent must calculate each leaseholder's share strictly in accordance with its terms.
At Block, our service charge management process begins with a detailed review of the building's historical expenditure, current condition, and anticipated needs. We prepare a line-by-line budget that is presented to the freeholder or directors for approval before demands are issued.
Budget Preparation
A detailed line-by-line budget covering every anticipated cost for the accounting year, based on historical expenditure, current contracts, and planned works.
Lease-Based Apportionment
Each leaseholder's share is calculated in strict accordance with the apportionment schedule in their lease, ensuring costs are divided fairly and lawfully.
Demand and Collection
Service charge demands are issued in accordance with the lease terms, typically quarterly or half-yearly, with clear breakdowns of each cost category.
What Does the Service Charge Include?
What does service charge include depends on the terms of the lease, but a well-managed building will typically cover the following categories of expenditure. Understanding what your service charge pays for helps you assess whether you are receiving value for money and whether the charges are reasonable.
Building Insurance
The cost of insuring the building structure and common parts. This is usually the single largest item in the service charge budget and should be competitively tendered annually.
Communal Repairs and Maintenance
Routine maintenance and repairs to shared areas including hallways, stairwells, roofs, external walls, car parks, and gardens. This covers both planned preventative maintenance and reactive repairs.
Cleaning and Grounds Maintenance
Regular communal cleaning, window cleaning, waste management, and grounds maintenance including garden care and seasonal upkeep of external areas.
Compliance and Safety
Fire risk assessments, electrical testing, emergency lighting, legionella testing, asbestos management, gas safety, and lift inspections where applicable.
Management Fees
The fee charged by the managing agent for administering the building, handling enquiries, instructing contractors, managing finances, and ensuring legal compliance.
Reserve Fund Contributions
Regular contributions to a sinking fund set aside for future major works such as roof replacement, external decoration, or lift refurbishment, reducing the need for large one-off demands.
For a more detailed explanation of how we manage these costs transparently, see our service charge accounts page. Every budget we prepare is fully itemised so leaseholders can see exactly where their money is allocated.
The Legal Framework: Service Charge Law UK
Service charge law UK is principally governed by the Landlord and Tenant Act 1985, as amended by the Commonhold and Leasehold Reform Act 2002. Together, these statutes provide a comprehensive framework of protections for leaseholders to ensure that service charges are fair, transparent, and properly accounted for.
The key provisions of the Act that every leaseholder should understand are as follows.
Section 19 - Reasonableness
Service charges are only payable to the extent that they are reasonably incurred and that the works or services to which they relate are of a reasonable standard. This is the cornerstone of leaseholder protection against unreasonable service charges flats owners may face.
- Costs must reflect fair market rates for the services provided
- The standard of work must be reasonable in relation to the cost charged
Section 20 - Consultation on Major Works
Where qualifying works exceed 250 pounds per leaseholder, the freeholder or managing agent must follow the Section 20 consultation process. Failure to consult limits the recoverable amount to 250 pounds per unit.
- Leaseholders must be given notice and the opportunity to nominate contractors
- Each consultation stage requires a minimum 30-day observation period
Section 20B - The 18-Month Rule
A leaseholder is not liable for costs incurred more than 18 months before the demand is served, unless prior written notification was given within that period. This protects against unexpected historic charges.
- Late demands may be unenforceable without prior written notification
Sections 21 and 22 - Right to Information
Leaseholders can request a written summary of costs and have the right to inspect invoices, receipts, and other documents supporting the service charge accounts. These transparency provisions are fundamental to holding managing agents to account.
Your Rights as a Leaseholder
The Landlord and Tenant Act 1985 gives leaseholders a powerful set of statutory rights in relation to service charges. These rights exist to ensure transparency, fairness, and accountability in the management of leasehold properties. Every leaseholder should be aware of these protections, regardless of the size or type of building they live in.
For a full overview of your entitlements, visit our leaseholder rights guide. The key rights relating to service charges are summarised below.
Right to a Summary of Costs
Under Section 21, you can request a written summary of the costs making up the service charge for the previous accounting period. The landlord must comply within one month or six months of the year-end, whichever is later.
Right to Inspect Accounts
Section 22 gives you the right to inspect the accounts, invoices, receipts, and other documents supporting the summary of costs. The landlord must make these available within one month of a written request.
Right to Challenge at Tribunal
Section 27A allows any leaseholder to apply to the First-tier Tribunal for a determination of whether a service charge is payable, whether it has been reasonably incurred, and whether the works are of a reasonable standard.
Right to Be Consulted
The Section 20 consultation process ensures leaseholders are informed and consulted before major works are carried out. You have the right to nominate contractors, make observations, and receive reasons for the choice of contractor.
How to Challenge Unreasonable Service Charges
Challenging service charges is a right that every leaseholder should understand. If you believe your charges are excessive, relate to substandard work, or have not been properly demanded, you have clear legal routes available to you. Unreasonable service charges flats owners face are one of the most common sources of conflict in leasehold properties, but the law provides effective remedies.
The recommended steps for challenging service charges are as follows.
Request a Detailed Breakdown
Write to your managing agent or freeholder requesting a full breakdown of costs, including copies of invoices and receipts supporting each line item in the service charge.
Exercise Your Right to Inspect
Under Section 22 of the Landlord and Tenant Act 1985, you have the statutory right to inspect accounts and supporting documents. The landlord must make them available within one month.
Raise a Formal Complaint
If the response does not resolve your concerns, escalate through the managing agent's formal complaints procedure. All regulated agents must have a written complaints process.
Refer to a Redress Scheme
If the complaint is not resolved, refer the matter to the relevant property redress scheme, which can investigate and direct remedial action.
Apply to the First-tier Tribunal
Under Section 27A, you can apply to the First-tier Tribunal for a determination of whether the charges are reasonable. The tribunal can reduce or disallow charges it considers unreasonable.
For a detailed guide on the dispute resolution process, including tribunal procedures and timescales, visit our service charge dispute page.
The Role of the Managing Agent
The managing agent plays a central role in the administration of service charges. A competent and transparent agent ensures that budgets are realistic, costs are competitively sourced, accounts are prepared on time, and leaseholders are kept informed throughout the process. The quality of management directly affects both the level of service charges and the likelihood of disputes.
At Block, we believe that most service charge disputes stem from poor communication, lack of transparency, or failure to follow proper procedures. Our approach to service charge management is built on the following commitments.
- Fully itemised budgets reviewed and approved before demands are issued
- Independently certified service charge accounts prepared within six months of the year-end
- No hidden commissions or mark-ups on insurance premiums or contractor costs
- Competitive tendering for all major contracts and regular benchmarking against market rates
- Open access to all invoices, receipts, and supporting documentation on request
- Full compliance with Section 20 consultation requirements for qualifying works
When service charges are clearly justified and properly documented, the grounds for dispute do not arise. If you are unhappy with the transparency or professionalism of your current managing agent, explore our leaseholder rights guide to understand your options.
Frequently Asked Questions About Service Charges
What is a service charge on a leasehold flat?
A service charge on a leasehold flat is a payment made by the leaseholder to the freeholder or managing agent to cover the cost of maintaining and managing the building and its communal areas. The obligation to pay a service charge is set out in the lease, which also defines what costs can be recovered and how they are apportioned between units. Service charges typically fund building insurance, communal cleaning, repairs, compliance work, management fees, and contributions to a reserve fund for future major works.
How is the service charge calculated?
The service charge is calculated by estimating the total cost of running and maintaining the building for the year ahead, then dividing that cost between leaseholders according to the apportionment method set out in each lease. Some leases split costs equally between all units, while others use a percentage or fraction based on the size or value of each flat. The managing agent prepares a detailed budget covering every anticipated cost, and each leaseholder receives a demand for their share, usually payable quarterly or half-yearly.
What is a reasonable service charge?
A reasonable service charge depends on the size, age, and location of the building, the range of services provided, and local market rates for those services. For a typical block of flats in the UK, annual service charges generally range from one thousand to three thousand five hundred pounds per unit, though buildings with lifts, concierge services, or extensive communal facilities may be significantly higher. Under the Landlord and Tenant Act 1985, service charges must be reasonably incurred and the works or services must be carried out to a reasonable standard.
Can I challenge my service charge?
Yes, leaseholders have the legal right to challenge service charges they believe are unreasonable. You should start by requesting a detailed breakdown of costs from your managing agent and exercising your right to inspect invoices and receipts under Section 22 of the Landlord and Tenant Act 1985. If the matter cannot be resolved through direct communication, you can apply to the First-tier Tribunal (Property Chamber) under Section 27A for a determination of whether the charges are reasonable. The tribunal can reduce or disallow charges it considers unreasonable.
What does the service charge include?
A service charge typically includes building insurance, communal area maintenance and repairs, cleaning and grounds maintenance, lift servicing where applicable, fire safety and compliance costs such as electrical testing and fire risk assessments, management fees charged by the managing agent, and contributions to a reserve or sinking fund for future major works. The exact scope depends on the terms of the lease, which defines the services the freeholder or managing agent is permitted to charge for.
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 leaseholder is not liable to pay a service charge in respect of costs incurred more than 18 months before the demand is served, unless the leaseholder was notified in writing within the 18-month period that the costs had been incurred and that they would be required to contribute. This is an important protection against unexpected historic charges and places a clear duty on managing agents and freeholders to issue demands and notifications promptly.
Transparent Service Charges You Can Trust
Whether you need help understanding your service charge, want to challenge unreasonable charges, or are looking for a managing agent that puts transparency first, Block Management Company is here to help. Our approach to service charge management is built on open accounting, fair pricing, and full compliance with service charge law UK requirements.