Service Charges: An Overview for Leaseholders

Service charges are a key part of leasehold ownership. While they can sometimes feel complex, it’s important for every leaseholder to understand how they work. In this guide, we explain what service charges are, what they include, and your rights if you want to challenge or question them.

What are service charges?

Service charges are payments leaseholders make to the freeholder (or landlord) to cover their share of the costs of managing, maintaining, and insuring the building.

While you are responsible for paying these charges, your landlord is responsible for providing the services themselves. Your lease sets out exactly what can be charged, and when and how payments must be made.

A landlord can usually recover costs through the service charge only if:

• The charges are reasonable
• The work is carried out to a reasonable standard
• The services are permitted under the lease

Importantly, you have the right to challenge any service charge you believe is unreasonable. You are also entitled to see information showing how the costs have been calculated.

Service charge funds must be held on trust for leaseholders. This means the money is protected and can only be used for the purposes set out in the lease. If a landlord becomes insolvent, these funds remain safeguarded.

What can be included in service charges?

Your lease is the key document. You cannot be charged for anything unless it is covered by your lease.

Some leases list specific services. Others use broader wording, such as referring to “repairing and maintaining the structure,” or include a “sweeping-up clause” that allows recovery of other reasonable costs associated with the building. Even where a sweeping-up clause exists, some costs still require specific wording in the lease.

Typical service charge costs may include:

• repair and maintenance of common parts (such as entrances, stairwells and roofs)
• buildings insurance
• cleaning and lighting of communal areas
• maintenance of lifts, boilers, alarms, or shared facilities
• gardening and upkeep of outdoor spaces
• routine health and safety compliance
• contributions to reserve or sinking funds for major future works

Costs only recoverable under specific lease terms

Some costs can only be recovered if your lease specifically allows for them.

Improvement works: Private sector leases often do not allow landlords to charge for improvements, although many social housing leases do. If there is a dispute over whether work is a “repair” or an “improvement,” the tribunal can decide.

Management costs: These include costs such as collecting service charges, staff salaries, office systems, and building management. These costs can only be recovered if your lease allows it, often as a set percentage or an amount described as “fair and reasonable.”

Legal costs: Landlords can only recover legal costs if the lease contains a specific indemnity clause. Even then, recovery may be limited, particularly where costs relate to disputes or tribunal proceedings, unless the wording is broad enough.

Leaseholders can apply for a Section 20C order to stop landlords adding tribunal-related legal costs to the service charge.

Legal costs as administration charges: Some leases allow legal costs to be recovered from an individual leaseholder as an administration charge rather than being shared across all leaseholders through the service charge. This depends entirely on the wording of the lease. If you are unsure, our Property Litigation team can review your lease and explain your position clearly.

Rules on reasonable service charges

The Landlord and Tenant Act 1985 sets the key rules:

• Service charges must be reasonable
• Works and services must be carried out to a reasonable standard

There is no fixed definition of “reasonable”. A tribunal will consider factors such as whether the works were necessary and whether proper procurement and cost control procedures were followed.

Both leaseholders and landlords can apply to a tribunal to decide whether a service charge is reasonable.

The 18-month rule for recovering costs

Under Section 20B of the Landlord and Tenant Act 1985, a landlord cannot recover costs if:

• The costs were incurred more than 18 months before a demand is issued, and
• No notice was served within that 18-month period advising that the costs would later be charged

If both steps are not followed, the costs cannot be recovered.

Major works and Section 20 consultation

Landlords must consult leaseholders before carrying out works or entering into agreements where any leaseholder will pay more than:

• £250 for major works, or
• £100 per year under a long-term agreement lasting more than 12 months

This process is set out in Section 20 of the Landlord and Tenant Act 1985. If landlords do not comply, their ability to recover costs may be limited. Please see our article on the Section 20 consultation process for more details.

Building safety costs

The Building Safety Act 2022 places restrictions on what landlords can charge leaseholders for certain safety defects in high-rise buildings, including issues such as unsafe cladding. These rules are complex, and the level of protection depends on whether the building meets specific criteria.

Need help with a service charge?

If you have received a service charge demand, are unsure about your rights, or want to challenge costs you believe are unreasonable, our Property Litigation team can help.

We can review your lease, explain your obligations, assess whether charges are reasonable, guide you through the tribunal process if needed, and help protect your interests to ensure fairness in the charges you pay.

For help with challenging a service charge, please call our Property Litigation team on 023 8063 9311 or email enquiries@warnergoodman.co.uk.