What is a service charge?
Service charges are an amount payable by a leaseholder or tenant, separate from ground rent, that goes towards repairs, service, maintenance, improvement works, insurance, and management costs overseen by the freeholder, or managing agent.
Service charges apply to the communal (shared) areas of the property, leaseholders and tenants will incur these charges as well as the costs required to maintain their own property.
A service charge may include payments to a reserve fund (also known as a sinking fund), this money is taken and stored to help cover costs for major works, so that the leaseholders do not have to incur a massive increase in their service charge for the following year.
What services do the freeholder (or managing agent) provide?
As mentioned, service charges are payable to the party responsible for the management of the block (usually either the freeholder, a managing agent, or an RMC), these managers use the service charge to deliver the following services:
- Maintenance, repair, and redecoration of communal areas.
- Upkeep of outdoor, and garden areas.
- Arrangement of buildings insurance.
- Collection of charges (ground rent, service charge etc.).
- Provision of any necessary staff (concierge, caretakers etc.).
How are service charges calculated?
The landlord will follow the lease terms when charging for service charges, which are typically split between leaseholders and tenants in a block or estate.
Some leases may change year from year, whereas others may stay fixed. The lease will state what service charges should look like, either as a fixed percentage or proportion (of total repair costs, maintenance, insurance, and management, for example).
What if you disagree with the service charge?
If you do not agree with the determined service charge, you can challenge the apportionment by making an application to the Tribunal, on the grounds that the charge is not reasonable.
Alternatively, if you feel that the current management of the block or estate is insufficient and that they are not fulfilling the management of the property, you could consider exercising the Right to Manage (RTM).
Right to Manage (RTM)
The right to manage gives qualifying leaseholders the ability to take over the management of their property if they feel the current management arrangement is insufficient.
Using the right to manage requires a special RTM company and there are complex criteria and qualifying rules. As such it is recommended that if you are thinking about the right to manage, you should seek advice beforehand.
You can speak to us about your current situation for advice on your block or estate’s management.
For more information on the Right to Manage, read the Leasehold Advisory Service guide: https://www.lease-advice.org/advice-guide/right-manage/