Leasehold service charges explained
Most leaseholders pay their freeholder landlord service charges to cover maintenance and shared costs.
What are service charges?
Service charges allow a freeholder to recover the costs of providing services such as maintenance under the lease.
Individual leaseholders pay a share of the total cost.
The freeholder is the person or organisation who owns the building or land that the home is on. The leaseholder is the person who owns the home itself.
Service charges usually cover things like:
repairs, maintenance and improvements to communal areas or the building structure
management company costs
lighting, heating and cleaning of communal areas
caretakers or concierges
You usually have to pay a share of everything even if you don't use some of the services.
For example, you probably have to pay for lift maintenance even if you never use the lift in your building.
Services you can be charged for
The services that you can and can't be charged for should be set out in your lease.
Charges sometimes include management costs and contributions to reserves.
You are not required to pay for services that are not provided for in your lease.
Reserve or sinking funds
You may have to pay into a fund for future works on your building.
This is called a reserve or sinking fund. It helps spread the cost of expensive works.
If you have to contribute to a reserve fund, you usually pay this as part of your service charge.
If you sell your home before the money has been spent, you can only get a refund if:
your lease says this will happen
you agree with your buyer that they pay you a sum to cover what you have paid
How much you can be charged
Service charges can change from year to year.
Your lease should say:
how service charges are calculated
how charges are divided between leaseholders
whether there is a sinking or reserve fund
Your solicitor should ask the seller for information about current and future service charges when you buy a leasehold property.
There are generally no limits on the level of service charges but the freeholder can only pass on reasonable costs to leaseholders.
Any works or services provided should also be of a reasonable standard. A tribunal can decide if a charge or proposed charge is reasonable.
Your right to be consulted
The freeholder must consult you if they intend to:
carry out works that will cost individual leaseholders more than £250 per year
use a contractor to provide services for more than a year and that will cost individual leaseholders more than £100 per year
You have the right to comment on proposals and to suggest alternative contractors.
If you buy your home under Right to Buy or Right to Acquire
Your offer notice from the council or housing association will include an estimate of service charges for the first 5 years.
Generally, you can't be charged more than this in the first 5 years of your lease, although there is an allowance for inflation.
When you have to pay service charges
Your lease sets out how and when you must pay your charges.
The freeholder or management company will send you a formal demand for service charge payment.
It must include:
the name and address of the freeholder
a summary of your rights and obligations regarding the service charge
If you don't pay your service charges
Your freeholder can apply to the county court to recover service charges if you don't pay.
You could lose your home, although your freeholder must follow procedures and get a court order to repossess your home.
You normally have the chance to stop problems getting this far.
How to challenge service charges
You have the right as a leaseholder to challenge a service charge or services provided.
You can do this even if you have already paid the charge in some cases.
Common reasons for challenges to service charges include:
work not done or done badly
you can't find out how your service charges are being spent
you're charged for services or works not covered in your lease
Start by contacting your freeholder
Contact your freeholder if you are unhappy with charges or the work or services you are being charged for.
Alternative dispute resolution
You can consider formal dispute resolution if your freeholder won't discuss or address your concerns.
Discussion in a formal mediation setting can be a cost effective way of resolving your problems with service charges if your freeholder will take part in mediation.
Take your freeholder to tribunal (court)
You can make an application to the first-tier tribunal (property chamber) to challenge a service charge.
You don't have to use alternative dispute resolution before going to tribunal.
The tribunal will look at the costs and services or works provided, and decide whether the service charges were reasonable.
Due to the coronavirus outbreak there won't be a face to face hearing. The tribunal may arrange for a hearing to take place by phone or using Skype. They could also make a decision without a hearing by looking at the paperwork.
You will need a solicitor to help you prepare a challenge. Find a solicitor.
Your freeholder must send you a summary of the service charges if you write and ask for it.
You can 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.
Still need help?
Contact LEASE if you have concerns or questions about leasehold charges.
Last updated: 14 April 2020