A service charge is your share of the cost of running your building or estate: cleaning, repairs, buildings insurance, the managing agent's fee, fire safety and usually a reserve fund for bigger works. It is normally collected in advance against a budget and then reconciled to the actual costs in year-end accounts. Your lease sets what can be charged and your share, and every cost must be reasonable.
01What it covers
A service charge is your share of the cost of running your building or estate: cleaning, gardening, repairs, buildings insurance, lighting and power for the shared areas, fire safety, the managing agent's fee and, often, a contribution to a reserve fund for bigger works. Your lease says what can be charged and what share you pay.
02How it is worked out
Most blocks collect the service charge in advance against a budget, then compare it with what was actually spent in year-end accounts. A surplus is usually credited and a shortfall charged, as the lease allows. Every cost must be reasonably incurred and the work of a reasonable standard.
03Why it goes up
Usually because costs went up: insurance premiums, energy for the shared areas, repairs as the building ages, new fire safety work, or a reserve fund that was too low and is being rebuilt. A good agent explains every rise in the budget before it is demanded.
04Your rights
- Every demand must give the landlord's name and an address in England and Wales, and come with a summary of your rights and obligations.
- You can ask for a written summary of the costs and inspect the invoices behind them.
- Costs incurred more than 18 months before they are demanded usually cannot be charged unless you were told about them in writing within that time.
- Major works costing any one leaseholder more than £250 need consultation first.
- You can ask the First-tier Tribunal to decide whether a charge is payable and reasonable.
05Questions
What does a service charge cover?
The costs of running the shared parts of your building or estate that the lease allows: cleaning, gardening, repairs and maintenance, buildings insurance, communal lighting and power, fire safety, the managing agent's fee and contributions to a reserve fund.
How is a service charge calculated?
The managing agent sets a budget of the year's expected costs and divides it between the flats in the shares the lease sets. At the year end the actual costs are compared with the budget and any difference is credited or charged.
Why has my service charge gone up?
Usually because costs have: insurance, energy, repairs as the building ages, new fire safety work, or rebuilding a reserve fund that was too low. You can ask for a summary of the costs and see the invoices.
What is a reserve fund?
Money set aside each year for large, predictable costs such as a new roof, redecoration or a lift, so leaseholders are not hit with one large bill. It belongs to the building and is held on trust.
Is ground rent part of the service charge?
No. Ground rent is a separate payment to the freeholder under the lease. The service charge pays for running the building.
06Guides for directors
- Service charge estimate
- RICS regulated block managers in Essex
- The reserve fund
- Service charge arrears
- Service charge accounts
- Directors' duties in an RMC
- How to choose a managing agent
- A free service charge check
- Service charges explained
- Buildings insurance for blocks
- Fire safety in blocks of flats
- The Directors' Library
- What is block management?
- How to change managing agent
- Residents' management companies
- Right to manage
- Block management fees
- Section 20 major works
- New-build estate fees
- Estate management in Essex