Leasehold service charges explained

Most leaseholders pay a service charge to cover the cost of maintaining the building they live in.

What are service charges?

Service charges are fees that most leaseholders pay to cover their share of the cost of maintaining the building they live in.

Service charges usually cover the costs of:

  • repairs to shared areas and the outside of the building, such as roof, external pipes, drains
  • buildings insurance
  • freeholders' administration or management charges

They can also be used to pay for shared services such as a caretaker, cleaners and the maintenance of shared areas.

You usually have to pay a share of everything even if you don't use some of the services. For example, if you live on the ground floor and never use the lift, you probably still have to pay something towards its maintenance.

Which service charges you must pay

Check your lease to see what service charges you must pay.

Your lease may set out in detail the services that you can be charged for.

It may also have a section that covers general services not specifically mentioned in the lease.

If your lease doesn't have this type of clause, you don't have to pay for anything that isn't specifically included in the lease.

The lease may allow the freeholder to charge a reasonable management fee.

Get advice if your lease doesn't give enough information about service charges. You may be able to ask a tribunal to change it.

Cost of service charges

Service charges are usually variable. This means that the amount you pay changes each year.

Your lease should say:

  • what services you have to pay for and when
  • how your freeholder can collect the charges
  • how service charges are calculated
  • how they are divided between you and any other leaseholders
  • whether there is a sinking or reserve fund

Payment of service charges

Service charges can be paid annually or more frequently. Your lease sets out when you should pay yours.

You don't have to pay service charges until the freeholder sends you a:

  • request for payment
  • summary of your rights and obligations

Your freeholder must send you a summary of the service charges if you write to them and ask for it.

You can then ask to inspect and take copies of the accounts, receipts and other relevant documents. The freeholder must allow this within one month of your request.

Your freeholder could be fined if they don’t send you a summary of the costs or they won't let you inspect the accounts.

Right to Buy and service charges

There are limits on how much the council can charge for service charges if you bought your home through the right to buy.

You can't be charged more than the estimate of service charges you were given when you bought your home, plus inflation, for the first five years after you completed the purchase.

In some circumstances you can’t be charged more than £10,000 (or £15,000 in London) in any other five-year period.

Sinking funds

Many leaseholders have to pay towards the cost of future repairs. This is called a sinking fund or a reserve fund.

Leaseholders are required to pay a certain amount every month or year to build up the sinking fund. You usually pay this as part of your service charges.

You only have to pay into a sinking fund if your lease says you have to.

Sinking funds provide a way to spread the cost of expensive works on your building.

If you sell your home before the money has been spent on repairs, you can only get a refund if your lease says this will happen.

You could agree with your buyer that they pay you a sum to cover what you have paid in to the fund.

Get advice if you want to set up a sinking fund. You need a formal agreement with the freeholder and all the other leaseholders.

Charges for major works

Your freeholder has to consult you if they are going to:

  • set up a service such as gardening or cleaning that will cost you more than £100 a year
  • carry out a repair or improvement that will cost you more than £250

Before arranging these repairs or services, the freeholder must:

  • tell you what work they plan to do and why it is needed
  • provide an estimate of the total cost of the work

For a repair or improvement the landlord must obtain at least two estimates.

You have the right to comment on what is being proposed and can usually suggest alternative contractors.

If the repairs needed are urgent and essential, the freeholder can go ahead before you have had time to comment.

If you were not properly consulted, you can take legal action through the tribunal. It could decide that you don’t have to pay for all of the service charge.

Get advice if you are in this situation. Contact the Leasehold Advisory Service.

Problems with service charges

Common problems with service charges include:

  • work not done or done badly, for example you may be paying for weekly cleaning but the building is not cleaned regularly
  • charges are too high
  • no information on what service charges are being spent on
  • being charged for things not covered in your lease

Contact your freeholder if you are unhappy with the services you are paying for. You may be able to negotiate a lower price or a better service.

In extreme cases, the tribunal may decide to appoint someone else to manage the building.

Court action by freeholders over unpaid service charges

If you don't pay your service charge, your freeholder can apply to the county court and in theory you could lose your home.

The freeholder has to follow special procedures and get a court order to repossess your home because you haven't paid your service charge.

 

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