Leasehold service charges

Leasehold property is leased from the freehold owner and constitutes the right to use and occupy the property for a fixed term, which needs to be renewed periodically. Most flats are leasehold property and many houses are also leasehold, particularly those purchased through a shared ownership scheme. Leasehold properties come with various legal obligations for the leaseholder, one of which is the service charge.

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What are leasehold service charges - and what can be included?

Leasehold service charges are generally levied to cover the costs of maintaining the shared parts of a building (particularly in the case of blocks of flats) or upkeep of the grounds. Expenses of the freeholder which may require service charge payments include:

  • repairs to the outside of a building which contains flats, including the roof, external walls and structural issues
  • drainage and water mains connections
  • cleaning of common parts of a shared building
  • gardening of shared grounds
  • maintenance of a lift
  • buildings insurance
  • management charges or administration fees

The lease should specify the various regular maintenance charges and the types of services which can be subject to additional charges (eg unexpected building repairs due to storm damage etc).

What are sinking funds?

Sinking funds (also known as reserve funds) refers to the pot of money reserved for emergency or unexpected maintenance issues (eg in the eventuality that the roof needs to suddenly be repaired). Leaseholders are obliged to make regular contributions to any relevant sinking fund, under the terms of their lease.

How should service charges be demanded?

Service charges are normally paid annually, although this can be more frequent, depending on what is contained in the lease. Prior to payment, the freeholder needs to send out a formal request for payment of service charges, which should normally include their name and address. The formal request should also contain a summary of the rights and obligations of the leaseholder. A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges. For more information on the summary of rights and obligations, see the Leasehold Advisory Service website.

Additionally, leaseholders have the legal right to ask for a summary which shows how any service charges are calculated and how they are spent. They can also demand any paperwork or other evidence which supports this summary (eg receipts from tradespeople etc).

How can service charges be challenged?

Leaseholders who wish to challenge service charges may be able to apply to the First-Tier Tribunal (Property Chamber - Residential Property) if it is a variable charge (not a fixed charge) and they:

  • consider a charge to be unreasonable
  • think that the standard of work which relates to a charge is unsatisfactory (eg if a roof has not been properly repaired)
  • believe they should not be paying the service charge

For further information read Challenging service charges.

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