Service Charge Law in the UK: A Guide for Leaseholders and Freeholders
Understand service charge law and your rights under the Landlord and Tenant Act 1985. This guide covers section 19 reasonableness, section 20 consultation requirements, your right to information, and how to challenge unreasonable charges at the first-tier tribunal. Whether you are a leaseholder or a freeholder, knowing the rules on service charge legislation is essential.
What Is a Service Charge Under UK Law?
A service charge is a payment made by a leaseholder to the landlord or managing agent to cover the costs of services, repairs, maintenance, improvements, insurance, and management of the building and its communal areas. The legal framework governing service charges in England and Wales is primarily found in the Landlord and Tenant Act 1985, as amended by subsequent legislation. Service charge law provides important protections for leaseholders and sets out the obligations of landlords and their agents.
Section 18 of the Landlord and Tenant Act 1985 defines a service charge as an amount payable by a tenant as part of or in addition to rent, which is payable directly or indirectly for services, repairs, maintenance, improvements, or insurance, or the landlord's costs of management. The amount payable must be variable, either in whole or in part, according to the relevant costs. This definition is important because it determines which charges fall within the statutory protections of service charge legislation.
Service charges typically cover a wide range of items, including building maintenance and repairs, communal area cleaning and lighting, lift maintenance, buildings insurance, management fees payable to the managing agent, sinking funds or reserve funds for future major works, and gardening or grounds maintenance. The specific items recoverable through the service charge depend on the terms of the individual lease. For a practical overview of how service charges work in practice, see our service charge guide.
It is important to distinguish between variable service charges, which fluctuate based on actual expenditure, and fixed service charges, which are set at a predetermined amount in the lease. The statutory protections under service charge law, including the reasonableness test and consultation requirements, apply only to variable service charges. If your lease specifies a fixed contribution, these protections may not apply to that element. Our service charge budget guide explains how budgets are prepared and how costs are allocated among leaseholders.
The Reasonableness Test: Section 19
Section 19 of the Landlord and Tenant Act 1985 is the cornerstone of service charge reasonableness. It provides that service charge costs are only recoverable to the extent that they are reasonably incurred, and that services or works must be carried out to a reasonable standard. This two-part test is the primary safeguard for leaseholders against excessive or unnecessary charges.
The first limb of section 19 requires that costs are reasonably incurred. This means the landlord or managing agent must demonstrate that the expenditure was necessary, that the amount paid was reasonable in the circumstances, and that the process of selecting contractors and agreeing prices was fair and transparent. If a landlord pays significantly above market rates for a service, or incurs costs for works that were unnecessary, a leaseholder can argue that those costs were not reasonably incurred.
The second limb requires that services and works are carried out to a reasonable standard. If a leaseholder is being asked to pay for cleaning, gardening, or maintenance work that is of poor quality, they can challenge the charge on the basis that the standard of service does not justify the cost. This aspect of service charge reasonableness ensures that leaseholders receive value for money.
If you believe that your service charge includes costs that are not reasonable, you have the right to challenge them at the first-tier tribunal (Property Chamber). The tribunal will assess the evidence and determine whether the charges meet the reasonableness standard set out in section 19. Understanding your leaseholder rights is the first step toward ensuring you are not paying more than you should.
Section 20 Consultation Requirements
Section 20 of the Landlord and Tenant Act 1985 imposes mandatory consultation requirements on landlords before they can recover the costs of certain works or agreements through the service charge. The section 20 consultation process is designed to give leaseholders a voice in major spending decisions that will affect their service charge. For a detailed breakdown of the process, see our Section 20 guide.
The consultation requirement applies in two situations. First, qualifying works are works on the building or any other premises where the cost to any single leaseholder exceeds 250 pounds. This covers major repairs, redecoration, replacement of building components, and other significant maintenance projects. Second, qualifying long-term agreements are contracts for services lasting more than twelve months where the cost to any single leaseholder exceeds 100 pounds per year. This includes long-term contracts for cleaning, lift maintenance, or insurance.
The section 20 consultation process involves three stages. At the first stage, the landlord must serve a notice of intention describing the proposed works or agreement and inviting leaseholders to make observations and nominate contractors. At the second stage, the landlord must obtain estimates, including at least one from a contractor nominated by a leaseholder if any nominations were made, and serve a statement of estimates on each leaseholder with a further invitation to make observations. At the third stage, the landlord must have regard to any observations received before entering into the contract or proceeding with the works.
The consequences of non-compliance with section 20 are significant. If the landlord or managing agent fails to follow the consultation procedure, the amount recoverable through the service charge for those qualifying works is capped at 250 pounds per leaseholder, regardless of the actual cost. The landlord can apply to the first-tier tribunal for dispensation from the requirements, but dispensation is not granted automatically. Understanding the consultation process is essential for effective service charge management.
Your Right to Information: Section 21 and Section 22
Transparency is a fundamental principle of service charge law. Sections 21 and 22 of the Landlord and Tenant Act 1985 give leaseholders important rights to obtain information about how their service charge money is being spent. These provisions ensure that landlords and their agents cannot operate behind closed doors when it comes to managing leaseholders' funds.
Under Section 21, a leaseholder (or the secretary of a recognised tenants' association) has the right to request a written summary of the costs that make up the service charge. The landlord must provide this summary within one month of the request, or within six months of the end of the accounting period to which it relates, whichever is later. The summary must be certified by a qualified accountant if the building contains more than four dwellings.
Section 22 goes further by giving leaseholders the right to inspect the accounts, receipts, and other documents supporting the summary of costs. After receiving a summary under Section 21, a leaseholder may request access to the underlying documentation within six months. The landlord must make the documents available for inspection within one month of the request and must provide facilities for the leaseholder to take copies.
The obligations on landlords under these provisions are enforceable. If the landlord fails to provide the requested information without reasonable excuse, they commit a summary offence. Furthermore, if a leaseholder has requested a summary of costs and the landlord has not provided it, the leaseholder may have grounds to withhold service charge payments until the information is supplied. Exercising your leaseholder rights to information is a crucial step in holding your managing agent accountable. For more on your entitlements, see our leaseholder rights page.
Challenging Unreasonable Service Charges
If you believe your service charge is unreasonable, you have the right to bring a service charge dispute before the first-tier tribunal (Property Chamber). The tribunal is the specialist body responsible for resolving disputes between leaseholders and landlords regarding service charges, and it has the power to determine whether charges have been reasonably incurred and whether services have been provided to a reasonable standard.
To apply to the tribunal, you need to complete the appropriate application form, which is available from the tribunal's website, and pay a small application fee. You should gather all relevant evidence to support your case, including copies of the service charge demands, your lease, any correspondence with the managing agent or landlord, comparable quotes for the works or services you are disputing, photographs or reports documenting any deficiencies in the works, and any expert evidence you have obtained.
The tribunal process is designed to be accessible and relatively informal. Hearings are usually conducted at a regional tribunal centre, and many leaseholders represent themselves without instructing a solicitor or barrister. The tribunal will consider the evidence from both sides and make a determination on the reasonableness of the disputed charges.
One of the most important features of the first-tier tribunal for service charge dispute cases is the no-costs jurisdiction. Under the general rule, the tribunal will not order the losing party to pay the winning party's legal costs. This means that leaseholders can challenge unreasonable charges without the fear of a large costs order if their application is unsuccessful. However, the tribunal does have the power to make a costs order where a party has acted frivolously, vexatiously, abusively, disruptively, or otherwise unreasonably.
Leaseholders considering a challenge should be aware that the general time limit is six years under the Limitation Act 1980, although it is always advisable to act promptly. If you are part of a managed building and would like to take a more proactive role in how your building is run, you may also wish to explore the Right to Manage process, which allows leaseholders to take over the management of their building without having to prove fault on the part of the landlord.
Frequently Asked Questions About Service Charge Law
Can I withhold my service charge if I disagree with it?
Withholding your service charge is risky and generally not advisable. As a leaseholder, you have a contractual obligation to pay the service charge demanded under your lease. If you withhold payment, the freeholder or managing agent can pursue you for the debt through the county court, and persistent non-payment could ultimately lead to forfeiture proceedings against your lease. The correct approach is to pay the service charge and then challenge it at the First-tier Tribunal (Property Chamber) if you believe the costs are unreasonable. The tribunal can determine whether the charges were reasonably incurred and, if not, order a reduction. In rare cases, the tribunal may allow you to withhold payment pending a determination, but you should always seek legal advice before taking that step.
What is a Section 20 notice?
A Section 20 notice is part of the statutory consultation process required under Section 20 of the Landlord and Tenant Act 1985. When a landlord or managing agent proposes to carry out qualifying works costing more than 250 pounds per leaseholder, or to enter into a qualifying long-term agreement costing more than 100 pounds per leaseholder per year, they must consult with leaseholders before proceeding. The consultation involves a three-stage process: a notice of intention describing the proposed works, an opportunity for leaseholders to nominate contractors and make observations, and a final notice of the landlord's proposals including at least two estimates. Failure to comply with the Section 20 consultation requirements limits the landlord's ability to recover costs to 250 pounds per leaseholder for the works in question.
How do I challenge an unreasonable service charge?
To challenge an unreasonable service charge, you should apply to the First-tier Tribunal (Property Chamber). The tribunal has the power to determine whether service charge costs have been reasonably incurred and whether services have been provided to a reasonable standard, as required by Section 19 of the Landlord and Tenant Act 1985. To make an application, you will need to complete the appropriate form, pay a small application fee, and submit evidence supporting your case. Useful evidence includes copies of the service charge demands, the lease, any correspondence with the managing agent, comparable quotes for the works or services in dispute, and any expert reports. The tribunal process is designed to be accessible to leaseholders without legal representation, and in most cases the tribunal operates a no-costs jurisdiction, meaning you will not be ordered to pay the landlord's legal costs even if your application is unsuccessful.
What happens if the managing agent does not consult under Section 20?
If the managing agent or landlord fails to comply with the Section 20 consultation requirements, their ability to recover the costs of the qualifying works or qualifying long-term agreement through the service charge is capped at 250 pounds per leaseholder. This cap applies regardless of the actual cost of the works. The landlord can apply to the First-tier Tribunal for dispensation from the consultation requirements, but dispensation is only granted where the tribunal is satisfied that it is reasonable to do so. Even where dispensation is granted, the tribunal may impose conditions, such as requiring the landlord to pay the leaseholders' costs of the dispensation application. Non-compliance with Section 20 is one of the most common grounds for challenging service charge demands at the tribunal.
Are management fees included in the service charge?
Yes, management fees charged by the managing agent are typically included as a service charge item. The lease will usually contain a provision allowing the landlord to recover the costs of employing a managing agent to manage the building, and these fees form part of the overall service charge demand. Like all service charge items, management fees must satisfy the reasonableness test under Section 19 of the Landlord and Tenant Act 1985. This means the fees must be reasonably incurred and the management services must be provided to a reasonable standard. If you believe the managing agent's fees are excessive or that the quality of management does not justify the cost, you can challenge the fees at the First-tier Tribunal. Alternatively, leaseholders may wish to explore the Right to Manage process to take control of the management of their building.
How far back can I challenge service charges?
Under the Limitation Act 1980, the general time limit for bringing a claim relating to a contractual debt, including service charges, is six years. This means you can typically challenge service charge demands going back up to six years from the date of your application to the First-tier Tribunal. However, the tribunal has a degree of discretion in determining which charges fall within its jurisdiction, and the precise limitation period may depend on the specific circumstances of your case, including when the charges were demanded and when you became aware of any issues. It is advisable to challenge service charges as promptly as possible, as delay can make it more difficult to obtain evidence and may affect the weight the tribunal gives to your case. If you are unsure whether your challenge is within time, seek legal advice before making an application.
Need Help With Service Charge Law?
Whether you need professional service charge management for your building, advice on a service charge dispute, or help understanding your leaseholder rights, Block is here to help. Our experienced team manages service charges across hundreds of buildings nationwide, ensuring full compliance with service charge legislation including section 19 and section 20 requirements.