How do service charges work on a leasehold flat?

Full answer

Service charges are a routine but sometimes unpredictable cost of leasehold ownership, and understanding how they are calculated and what rights you have as a leaseholder can help you budget and challenge unreasonable charges. **What service charges typically cover** Common costs included are buildings insurance for the whole structure, maintenance and repair of communal areas (hallways, stairwells, lifts, gardens, car parks), cleaning of shared spaces, management company or managing agent fees, and utilities for communal areas (such as lighting) -- individual flat contents insurance and utilities within your own flat are separate and not covered by the service charge. **How the charge is split** Most leases specify a formula for splitting the total service charge among leaseholders, commonly based on the flat's floor area as a proportion of the whole building, or an equal split among all flats, or sometimes a fixed percentage set out explicitly in each individual lease -- check your specific lease for the exact formula, since it is not always a simple equal split. **Reserve funds (sinking funds)** Many leases require leaseholders to contribute to a reserve fund (sometimes called a sinking fund) alongside routine annual costs, building up savings over time to cover large, infrequent expenses like a full roof replacement or major exterior redecoration, avoiding the need for one enormous one-off charge when major works are eventually needed. **Service charges must be reasonable** Under leasehold law, service charges must be reasonable in amount and for works or services of a reasonable standard -- leaseholders have the right to challenge unreasonable charges through the First-tier Tribunal (Property Chamber), and freeholders/managing agents must follow proper consultation procedures for major works above certain cost thresholds. **Section 20 consultation for major works** For significant works or long-term agreements above set cost thresholds, freeholders must follow a formal consultation process (commonly referred to by its "Section 20" legal reference) involving leaseholders before proceeding, giving leaseholders the opportunity to comment and, in some cases, nominate alternative contractors -- failing to follow this process can limit how much of the cost the freeholder can recover from leaseholders. **Worked example** A building with 10 equally-sized flats has annual service charges of £45,000 covering insurance, cleaning, communal maintenance, and reserve fund contributions -- split equally, each leaseholder pays £4,500 a year (£375 a month), though a leaseholder in a smaller flat under a floor-area-based formula might pay proportionally less. **Requesting information** Leaseholders have a legal right to request a summary of service charge costs and, in many cases, supporting documentation (invoices, accounts) to check the charges are legitimate and reasonably incurred -- exercising this right is a reasonable first step if you have concerns about how charges are being calculated or spent. **Practical tip** Review several years of service charge accounts (not just the current year) before buying a leasehold flat, and check whether a major reserve fund contribution or large planned works are expected soon, since these can significantly increase your costs shortly after you move in.

Try the calculator

More answers

• What is the difference between freehold and leasehold?
• How much does it cost to extend a lease in the UK?