Understanding Service Charges: What Leaseholders Should Expect

The service charge is how leaseholders share the cost of running their building: cleaning, insurance, repairs, compliance, management and saving for future major works. Leaseholders are entitled to understand every line of it, and to question any charge they believe is incorrect.

What makes a charge payable?

• The lease must allow the cost to be recovered
• Costs must be reasonably incurred, and works carried out to a reasonable standard (section 19 of the Landlord and Tenant Act 1985)
• Demands must be accompanied by the statutory summary of tenants' rights and obligations
• Costs should generally be demanded within 18 months of being incurred, or leaseholders notified within that time (section 20B)

Reserve funds

Where the lease allows it, a reserve or sinking fund spreads the cost of predictable big-ticket items, such as roofs, lifts and redecoration, over several years, so leaseholders can plan for them comfortably. Service charge money is held on trust for the leaseholders.

How to challenge a charge

Start by asking the managing agent for a breakdown and supporting invoices. Most questions are resolved at this stage. For anything further, leaseholders in England can apply to the First-tier Tribunal (Property Chamber), and in Wales to the Leasehold Valuation Tribunal, to decide whether a charge is payable and reasonable.

At Westbridge, budgets come with an explanation of every line, and the year-end accounts show where the money went, with photos of the work it paid for.