Understanding your service charge

A service charge is a sum you pay to your landlord or management company to cover the costs of maintaining and managing the building and shared areas. Your lease sets out what can be charged and when.

Service charges typically cover: building insurance, communal cleaning and grounds maintenance, repairs and maintenance to the building structure and common parts, management fees, and contributions to the reserve fund.

Unlike council tax or utility bills, service charges vary depending on the actual costs incurred in each financial year. They are an estimate in advance, then reconciled against actual expenditure at the end of the accounting period.

Your service charge is calculated by dividing the total costs of running the building by the number of units, according to the apportionment set out in your lease. Most leases allocate costs equally between flats, but some use a floor area basis or a fixed percentage.

Before the start of each service charge year, we prepare an annual budget estimating the anticipated expenditure. You are asked to contribute an advance payment based on your share of that budget. At the end of the year, we reconcile actual income against actual expenditure. If we spent less than budgeted, you receive a credit; if more, a balancing charge may apply.

All budgets are prepared with reference to past expenditure, known upcoming costs, and professional surveys of the building. A copy of the annual budget and the year-end accounts are both available in your Leaseholder Portal.

Exactly what is included in your service charge depends on your specific lease. Common categories include:

Building insurance (premium and valuation fees) — the building is insured as a whole; the policy is arranged by the landlord or management company.

Communal maintenance — cleaning of common areas (lobbies, stairwells, car parks), grounds maintenance, window cleaning, pest control.

Repairs and maintenance — reactive repairs to the fabric of the building and common areas, plus planned preventative maintenance.

Management fee — the fee charged by the management company for administering the block.

Reserve / sinking fund — contributions to a fund set aside for major expenditure in future years (see topic 04).

Utilities — electricity, water and heating for common areas.

A reserve fund (sometimes called a sinking fund) is money collected in advance and held in a dedicated account to fund major works — such as roof replacement, external decoration, or lift overhaul — without the need for large one-off demands.

Contributions are collected each year as part of the service charge and held on trust for the benefit of all leaseholders. The fund belongs to the building, not the management company. If you sell your property, you do not receive a refund of your contributions; the fund transfers with the property.

The required level of contribution is informed by a periodic reserve fund study (also called a long-term maintenance plan). This is a professional assessment of the building's components, their expected lifetimes, and the costs of future replacement.

You can view the current balance and recent transactions of the reserve fund through your Leaseholder Portal.

Where the cost of works to your building will exceed £250 per leaseholder, the landlord must follow the statutory consultation procedure under Section 20 of the Landlord and Tenant Act 1985.

The consultation has three stages: Stage 1 — Notice of Intention: leaseholders are invited to make observations on the proposed works and to nominate a contractor. Stage 2 — Notification of Estimates: at least two estimates are obtained and shared with leaseholders for observation. Stage 3 — Notice of Reasons (if required): if the chosen contractor was not the cheapest, leaseholders must be informed of the reasons.

Praesidius manages all Section 20 consultations in-house and communicates with leaseholders throughout via the portal and in writing. All documents and contractor estimates are published to the Leaseholder Portal during the consultation period.

If you believe a service charge is unreasonable, you have the right to challenge it. The first step is to raise a query with your property manager in writing or via the Leaseholder Portal. We will investigate and respond within 10 working days.

If you remain dissatisfied, you may apply to the First-tier Tribunal (Property Chamber) for a determination of whether the service charge is payable. There is no application fee for leaseholders.

You should continue to pay any undisputed element of the service charge while a dispute is under way. Withholding payment of an entire demand while disputing one element may leave you liable for arrears and legal costs.

Praesidius has a formal Complaints Handling Procedure. You can read this at /complaints or request a copy from your property manager.

Residential service charges must be paid by Direct Debit or bank transfer. Card payments are not accepted. This is standard practice in residential leasehold management and avoids card processing fees being added to your account.

Setting up a Direct Debit is the easiest way to pay. You can set up, amend or cancel your Direct Debit mandate at any time through the Leaseholder Portal. Payments are collected automatically on the due dates set out in your lease.

If you prefer to pay by bank transfer, payment instructions including sort code, account number, and your unique reference are available in the Leaseholder Portal. Always quote your reference to ensure your payment is correctly allocated.

As a leaseholder you have a number of statutory rights in relation to service charges:

Right to information — you can request a summary of costs under Section 21 LTA 1985. We must provide this within one month of your request.

Right to inspect documents — you can inspect and take copies of accounts and supporting documents under Section 22 LTA 1985.

Right to challenge — you can apply to the First-tier Tribunal to determine whether a service charge is reasonable.

Right to a recognised tenants' association (RTA) — leaseholders can form a RTA, which has additional consultation rights.

Right of first refusal — if the freehold is offered for sale, leaseholders may have the right to purchase it first under the Landlord and Tenant Act 1987.

For independent advice on your rights, contact the Leasehold Advisory Service (LEASE) at lease-advice.org.