Selling a Flat With a Difficult Managing Agent
How a slow or unresponsive managing agent affects your sale, your rights, and the formal complaints routes available to you.
Read the guide →Leasehold Advice
Service Charges: What They Cover, What Is Reasonable, and How to Dispute Them
Service charges are a legal right for freeholders to recover building costs, but the charges must be reasonable and properly accounted for. This guide covers what leaseholders are and are not required to pay, and what to do when charges appear excessive.
What Service Charges Are
A service charge is a leaseholder's contribution to the costs of running and maintaining the building. The right to charge it comes from the lease, and the specific items it can cover are usually listed in a schedule of the lease document. Common items include building insurance, communal cleaning and gardening, lifts, lighting in common parts, and the managing agent's fee.
Service charges are collected by the freeholder or, in most cases, by a managing agent appointed by the freeholder. Charges are usually billed annually or twice yearly, with an estimated demand at the start of the year and a balancing charge or credit once actual costs are known. In some blocks, leaseholders pay on account and receive an annual statement reconciling estimates against actuals.
The charge you pay is your proportionate share of the building's total costs. How that proportion is calculated depends on your lease: some use an equal split, others are weighted by flat size or floor area.
What Service Charges Can Cover
The lease defines what the freeholder can recover through the service charge. If an item is not specified in the lease, it generally cannot be charged. Some leases are broadly drafted, allowing recovery of most reasonable building management costs. Others are more prescriptive. If your service charge includes items that do not appear to be authorised by your lease, that is a grounds for challenge.
Commonly authorised items include:
- Buildings insurance (the freeholder insures the building as a whole; leaseholders contribute through the service charge)
- Routine repairs and maintenance to the structure and common parts
- Cleaning and gardening of communal areas
- Lift service and maintenance contracts
- Lighting, heating, and utilities in common areas
- Management fees (the cost of the managing agent's time)
- Accountancy fees for producing annual service charge accounts
- Contributions to a reserve fund for future major works
Items that are more often disputed include management fees that appear disproportionate to the service provided, insurance premiums placed with connected parties at above-market rates, and costs for work that appears unnecessary or was not carried out to a reasonable standard.
Reserve Funds
A reserve fund (also called a sinking fund or maintenance reserve) is a pot of money built up gradually through service charge contributions to cover the cost of future major works. The idea is that when the roof needs replacing or the external walls require repainting, there is already money set aside and leaseholders do not face a sudden large demand.
Whether a building has a reserve fund, and how much is held in it, varies considerably. Some freeholders collect regular contributions; others collect nothing and raise demands for major works as they arise. From a buyer's perspective, a well-funded reserve fund is reassuring: it signals that the building is being managed proactively and that major works will not produce a surprise demand shortly after purchase.
An empty or underfunded reserve fund is a risk factor for buyers. Their solicitors will ask about the fund as part of the management pack, and some lenders take it into account when deciding whether to lend. It is not unusual for a buyer to renegotiate the price or ask for a contribution from the seller towards a low reserve fund balance.
Contributions to a reserve fund are subject to the same reasonableness test as other service charges. The money is held on trust for the leaseholders and must be kept in a separate account. If the freeholder keeps reserve fund money mixed with their own funds, that is a breach of the statutory requirements.
Your Legal Protections
Leaseholders have a number of statutory protections against unreasonable service charges. The main ones come from the Landlord and Tenant Act 1985.
The reasonableness test (section 19)
Service charges are only payable to the extent that the costs are reasonably incurred and the services are carried out to a reasonable standard. This test applies to every item in the service charge, not just major works. A charge can fail the test if the work was unnecessary, if the cost was excessive given the standard of the work, or if the freeholder used a connected contractor at above-market rates without getting competitive quotes.
If you believe a charge fails the reasonableness test, you can apply to the First-tier Tribunal (Property Chamber) for a determination. The Tribunal will look at whether the amount charged, and the standard of the services, were reasonable in the circumstances.
Right to a summary of costs (section 21)
You can request a written summary of the costs relevant to your service charge from the landlord or managing agent. The summary must be provided within one month of the request, or within six months of the end of the accounting period if that is later. If the summary relates to a building with more than four flats, it must be certified by a qualified accountant.
Right to inspect accounts (section 22)
Within six months of receiving the section 21 summary, you can request to inspect the supporting accounts, receipts, and other documents. The landlord must make these available at a reasonable time and place. Refusing to comply with these requests is a criminal offence.
Administration charges
Fees charged for things like providing information, granting consents, or registering notices are called administration charges. These are governed by Schedule 11 to the Commonhold and Leasehold Reform Act 2002 and must also be reasonable. They can be challenged at the First-tier Tribunal in the same way as service charges.
Section 20 Consultation
Section 20 of the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002) requires freeholders to consult leaseholders before carrying out qualifying major works. The consultation is not optional: freeholders who skip it can only recover £250 per leaseholder for those works, regardless of how much the works actually cost.
When does Section 20 apply?
The consultation requirement is triggered when the freeholder intends to carry out works that will cost any one leaseholder more than £250. It also applies to long-term qualifying agreements (such as maintenance contracts over 12 months) where the cost to any one leaseholder exceeds £100 per year.
The consultation process
The process has three stages. First, the freeholder serves a Notice of Intention on all leaseholders describing the proposed works and inviting them to make observations. Second, the freeholder obtains at least two estimates and circulates a statement containing these, giving leaseholders the opportunity to make observations and to nominate their own contractor. Third, if the freeholder does not choose the lowest estimate or the nominated contractor, they must give reasons in writing.
Each stage has set response periods (usually 30 days per stage). If the freeholder does not follow the process, or fails to give adequate notice, leaseholders can challenge the charges for those works at the First-tier Tribunal.
Emergency works
Where the works are urgently needed to avoid a risk to health or safety, the freeholder can apply to the First-tier Tribunal for dispensation from the consultation requirement. The Tribunal may grant this and allow the costs to be recovered in full, provided the works were genuinely urgent.
How to Dispute Service Charges
If you believe your service charges are unreasonable or improperly charged, there are several routes available.
Start informally
Write to the managing agent or freeholder setting out your concerns, with specific reference to the items you believe are unreasonable. Ask for supporting invoices or evidence of competitive tendering. In many cases, this produces a satisfactory response: agents and freeholders who know they cannot justify a charge will sometimes reduce it or provide documentation that explains it.
Use the managing agent's complaints process
If the managing agent is a member of a professional body such as the Royal Institution of Chartered Surveyors (RICS) or the Association of Residential Managing Agents (ARMA), it will have a formal complaints process. RICS-regulated agents must follow the RICS Service Charge Residential Management Code, which sets out standards for how service charges should be managed and accounted for.
Apply to the First-tier Tribunal (Property Chamber)
This is the main formal route for challenging service charges in England. The Tribunal can determine whether charges are payable and, if so, in what amount. You do not need a solicitor to apply, though legal advice is helpful for larger disputes. The application fee is typically £100 to £200.
Key points about Tribunal applications:
- You must apply before paying the disputed amount if you want the Tribunal to determine whether it is payable; applying after paying is possible but changes the nature of the application
- Costs orders are rare in the Tribunal; each party usually bears their own costs
- The Tribunal can hear disputes about historic charges (subject to limitation periods) as well as current ones
- Both parties must provide evidence; the Tribunal will decide on the basis of the documents and submissions before it
Right to manage
If the building is persistently poorly managed and service charges are regularly unreasonable, leaseholders may consider exercising the right to manage (RTM). This allows leaseholders to take over management of the building without having to buy the freehold and without needing to prove fault on the part of the freeholder. The LEASE guide on the right to manage sets out the qualifying criteria and the process.
Service Charges and Selling Your Flat
High service charges affect sale prices. Buyers look at the total annual cost of ownership, not just the purchase price, and a flat with service charges of £4,000 a year will be valued differently to one with charges of £1,500 a year, even if everything else is the same. Mortgage lenders also take service charges into account when assessing affordability.
Planned major works are a particular concern for buyers. If the managing agent has notified leaseholders of forthcoming works, that information must be disclosed in the management pack. Buyers who face a demand of several thousand pounds shortly after purchase will either renegotiate the price, request a retention, or walk away. Some sellers choose to negotiate a price reduction up front rather than wait for the buyer to discover the issue during conveyancing.
Service charge accounts that are out of date or missing slow sales. Buyers' solicitors request the last three years of accounts as part of their standard due diligence. If the accounts have not been produced, or the managing agent is slow to provide them, conveyancing can stall by weeks or months.
Ongoing disputes
If you have an active dispute about service charges, including a pending Tribunal application, this must be disclosed to buyers. Some buyers will be deterred; others may see it as a reason to negotiate the price down. Specialist cash buyers are generally more tolerant of ongoing disputes than mortgage buyers, whose lenders may have concerns about unresolved property issues.
When service charges make a flat difficult to sell
Very high service charges, combined with other leasehold complications, can make a flat difficult to sell through conventional routes. If you are dealing with charges you cannot resolve and want to sell without waiting for a Tribunal determination, a direct sale to a cash buyer is usually the most straightforward option. We take a view on each property individually and are familiar with the complications that high or disputed service charges can create.
Frequently Asked Questions
A payment by leaseholders towards the cost of maintaining, insuring, and managing the building. It comes from the lease and is collected by the freeholder or managing agent, typically annually or twice yearly. Items can include buildings insurance, communal cleaning, lift maintenance, management fees, and reserve fund contributions.
Under section 19 of the Landlord and Tenant Act 1985, charges are only payable if the costs were reasonably incurred and the services were carried out to a reasonable standard. If either test fails, the charge can be challenged. The First-tier Tribunal (Property Chamber) determines whether charges meet this test.
A reserve fund collects money in advance for future major works, rather than raising large one-off demands when works are needed. Contributions are subject to the same reasonableness test as other service charges and can be challenged at the First-tier Tribunal. The money must be held on trust for leaseholders in a separate account.
A statutory process requiring freeholders to consult leaseholders before carrying out qualifying works that will cost any one leaseholder more than £250. If the freeholder fails to follow the process, they can only recover £250 per leaseholder for those works, regardless of the actual cost. The process involves notices, estimates, and giving leaseholders the opportunity to make observations and nominate contractors.
Under section 21 of the LTA 1985, you can request a written summary from the landlord or managing agent. It must be provided within one month of the request (or six months from the end of the accounting year, if later). You can then request to inspect the underlying accounts and receipts under section 22.
High charges reduce buyer demand and can affect mortgage affordability assessments. Planned major works must be disclosed in the management pack and often lead to price renegotiation. Missing or out-of-date accounts slow conveyancing significantly. Buyers' solicitors routinely request three years of accounts as part of their standard checks.
Related Guides
Should I Extend My Lease Before Selling?
A decision guide weighing the cost of extending against the price discount of selling as-is, broken down by remaining lease term.
Read the guide →