Service Charge Management
Transparent service charge management that gives leaseholders confidence in how their money is managed. From budget setting and demand collection to independent auditing and year-end service charge accounts, every pound is accounted for.
How Is Service Charge Calculated?
Service charges are calculated by estimating the total cost of maintaining and running the building for the coming year, then apportioning that cost between leaseholders according to the terms of their individual leases. The calculation process requires careful budgeting, accurate cost forecasting, and a thorough understanding of each building's specific needs and lease obligations.
The apportionment method varies from building to building. Some leases divide costs equally between all units. Others use a percentage or fraction based on the size of each flat, or a combination of fixed and variable charges. The lease is the governing document, and the managing agent must calculate each leaseholder's contribution strictly in accordance with its terms.
At Block, our service charge calculation process begins with a detailed review of the building's historical expenditure, current condition, and anticipated needs for the year ahead. We prepare a line-by-line budget that is presented to the freeholder or directors for approval before service charge demands are issued to leaseholders.
Budget Preparation
Detailed line-by-line budgets based on historical costs, current contracts, planned works, and anticipated expenditure for the accounting year ahead.
Fair Apportionment
Each leaseholder's share is calculated in strict accordance with the lease terms, ensuring costs are divided fairly and legally across all leaseholders.
Reserve Funds
Contributions to a sinking fund or reserve fund to spread the cost of future major works, avoiding large one-off demands on leaseholders.
What Should a Service Charge Include?
The scope of a service charge is determined by the terms of the lease, but a well-managed building will typically include the following categories of expenditure. Understanding what your service charge covers helps you assess whether you are receiving value for money and whether your managing agent is fulfilling their obligations.
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 reviewed annually to ensure competitive premiums.
Communal Maintenance
Routine maintenance and repairs to shared areas including hallways, stairwells, car parks, gardens, and external areas. This covers both planned preventative work and reactive repairs.
Cleaning and Grounds
Regular communal cleaning, window cleaning, waste management, and grounds maintenance including garden care, hedge trimming, and seasonal planting.
Compliance Costs
Fire risk assessments, electrical testing, emergency lighting servicing, legionella testing, asbestos management, and lift inspections where applicable.
Management Fees
The fee charged by the managing agent for administering the building. This should be clearly stated as a separate line item and should not include hidden commissions or mark-ups.
Reserve Fund Contributions
Regular contributions to a sinking fund set aside for future major works such as roof repairs, external decoration, or lift replacement, reducing the need for large ad hoc demands.
At Block, every service charge budget is fully itemised so leaseholders can see exactly where their money is allocated. Our block management service includes transparent financial reporting as standard, and we welcome leaseholder scrutiny of all accounts.
Service Charge Accounts and Auditing
Proper accounting is the backbone of good service charge management. Leaseholders have a legal right to see how their money has been spent, and the Landlord and Tenant Act 1985 requires that a summary of costs is provided within six months of each accounting year-end. Transparent, timely accounting builds trust and reduces the risk of disputes.
Block prepares fully certified service charge accounts for every building we manage. Our accounts are produced by qualified accountants and provide a comprehensive breakdown of all income and expenditure during the accounting period. We go beyond the minimum legal requirements because we believe leaseholders deserve complete clarity on how their service charges have been used.
Annual Budget Review
Before each accounting year, we review the previous year's expenditure and prepare a revised budget that reflects the building's current needs and any anticipated changes in costs.
Demand Collection
Service charge demands are issued in accordance with the lease terms, typically quarterly or half-yearly. We maintain clear records of all payments received and manage arrears promptly.
Year-End Accounts
Certified accounts are prepared within six months of the year-end, showing actual expenditure against budget for every line item, along with a balance sheet and notes to the accounts.
Independent Audit
All service charge accounts are independently certified, providing leaseholders with assurance that the figures are accurate and that funds have been properly managed.
Leaseholders have the right to request a summary of relevant costs and to inspect the supporting documents, including invoices and receipts. We facilitate all such requests promptly, because we have nothing to hide and everything to gain from demonstrating responsible financial stewardship.
Challenging Unreasonable Service Charges
The Landlord and Tenant Act 1985 provides important protections for leaseholders against unreasonable service charges. If you believe the charges levied on your property are excessive, poorly evidenced, or relate to substandard work, you have the right to challenge them. Understanding the process can help you protect your interests effectively.
A service charge dispute typically begins with a written request for information from the managing agent. Leaseholders are entitled to inspect accounts and receipts, and a competent managing agent will respond promptly and transparently. If the dispute cannot be resolved through direct dialogue, the matter can be referred to the First-tier Tribunal (Property Chamber), which has the power to determine whether charges are reasonable.
Know Your Rights
- You can request a summary of costs within six months of the accounting year-end
- You have the right to inspect invoices and receipts supporting the accounts
- You can apply to the First-tier Tribunal to challenge unreasonable charges
- Section 20 consultation must be followed for works above 250 pounds per unit
- Managing agents must not take hidden commissions on insurance or contracts
At Block, we are committed to preventing service charge disputes through proactive transparency. Our detailed budgets, certified service charge accounts, and open communication mean leaseholders rarely need to question where their money has gone. If you are experiencing a service charge dispute with your current managing agent, switching to a transparent provider can resolve the underlying issues and restore confidence.
New Rules for Service Charge Accounting
The regulatory landscape for service charge management is evolving, with the UK government introducing measures to strengthen leaseholder protections and improve transparency in the sector. The Leasehold and Freehold Reform Act 2024 includes provisions that will require managing agents to provide standardised annual reports, making it easier for leaseholders to understand and compare service charge costs.
Key changes on the horizon include requirements for service charge accounts to be presented in a standardised format, clearer rules around the treatment of reserve funds and sinking funds, enhanced consultation requirements for qualifying works, and improved access to the tribunal for leaseholders who wish to challenge unreasonable charges. These reforms aim to bring greater accountability to the leasehold management sector.
Block already operates to standards that exceed the current legal minimums. Our service charge accounts are fully itemised, independently certified, and presented in a clear format that leaseholders can easily understand. When the new regulations come into force, our clients will experience a seamless transition because we have been operating to these higher standards from the outset.
We continue to monitor the regulatory environment closely and will keep our clients informed of any changes that affect their rights or obligations. Our team receives regular training on leasehold law and service charge accounting standards to ensure we remain at the forefront of best practice in the sector.
Frequently Asked Questions About Service Charges
What is a service charge in a block of flats?
A service charge is a payment made by leaseholders to cover the cost of maintaining and running the communal areas and shared services within a block of flats. It typically funds building maintenance, cleaning, insurance, management fees, compliance work, and contributions to a reserve fund for future major works. The obligation to pay a service charge is set out in the terms of each leaseholder lease, which specifies what costs can be recovered and how they are apportioned between units.
What is a reasonable service charge for a flat?
A reasonable service charge depends on the size and age of the building, the range of services provided, the condition of the property, and local costs. For a typical block of flats in the UK, annual service charges generally range from 1,000 to 3,500 pounds per unit, though this can be significantly higher for buildings with lifts, concierge services, or extensive communal facilities. The Landlord and Tenant Act 1985 states that service charges must be reasonable, and leaseholders have the right to challenge charges they consider unreasonable at the First-tier Tribunal.
Can I challenge my service charge?
Yes, leaseholders have the legal right to challenge service charges they believe are unreasonable. Under the Landlord and Tenant Act 1985, you can apply to the First-tier Tribunal (Property Chamber) to determine whether the charges are reasonable and whether the works or services to which they relate are of a reasonable standard. Before applying to the tribunal, it is worth raising your concerns directly with your managing agent, as many disputes can be resolved through open dialogue and transparent accounting.
What is a Section 20 consultation?
A Section 20 consultation is a legal process that must be followed before a landlord or managing agent can carry out qualifying works costing more than 250 pounds per leaseholder, or enter into a qualifying long-term agreement costing more than 100 pounds per leaseholder per year. The process involves three stages: a notice of intention, a notice of estimates, and a notice of reasons. The purpose is to give leaseholders the opportunity to comment on the proposed works and to nominate their own contractors. Failure to follow the Section 20 process limits the amount that can be recovered from leaseholders to 250 pounds per unit.
How often should service charge accounts be prepared?
Service charge accounts should be prepared annually, covering a twelve-month accounting period. The Landlord and Tenant Act 1985 requires that a summary of costs must be provided to leaseholders within six months of the end of each accounting period. Best practice, followed by Block, is to prepare fully certified accounts that are independently audited and distributed promptly after the year-end, giving leaseholders a clear and accurate picture of how their money has been spent.
What happens if a leaseholder does not pay their service charge?
If a leaseholder does not pay their service charge, the freeholder or management company can take steps to recover the debt. This typically begins with reminder letters and formal demands, followed by a letter before action from a solicitor. If payment is still not received, the debt can be pursued through the county court. In serious cases of persistent non-payment, the freeholder may seek forfeiture of the lease, though this requires a prior determination by the tribunal or court that a breach has occurred. At Block, we follow a structured arrears process that aims to resolve payment issues through communication before escalating to legal action.
Ready for Transparent Service Charge Management?
Whether you need help with service charge budgeting, want clearer accounts, or are looking to switch to a managing agent that puts transparency first, we are here to help. Our building maintenance and financial management services work hand in hand to deliver value.
info@blockmanagementcompany.com · 274 Manchester Rd, Audenshaw, Manchester M34 5GL