Purpose

Landlords and managing agents charge service charges to cover the costs of maintenance and repairs, building insurance and management fees. The costs may include additional components and you should request for a summary and relating documents.

Check if your lease allows your landlord to apply a service charge to recover their costs. Landlords and managing agents are incentivised to pass on service charges to leaseholders but this is not always the case. Some leases even allow for service charges to be recovered when you sell your flat.

Cost Variation

Service charges can vary between leaseholds based on the services available to the property and their quality. Service charges can also vary from time to time if there are major building works planned, such as the construction of additional amenities or replacement of a roof.

Asking for past service charge statements will help you to get an idea of how much you will have to pay. You can also ask your landlord to set out estimated service charges for the next five years.

You should expect costs to increase annually by a reasonable amount. Service charges can become costlier as a result of:

  • Inflation

  • Higher management staff wages

  • Higher material costs

  • Replacement of aged building components

Reserve funds

Reserve funds allow landlords to collect money in advance to cover the cost of irregular and expensive work. This ensures all tenants contribute to the cost of the work, rather than only those living in the building when it is carried out. It also reduces the impact a major work will have on the service charges when the work begins.

You should make sure the money paid is held responsibly in trust accounts.

Right to Manage

In some buildings, you have the right to manage your own property by setting up a 'right to manage' (RTM) company. Bear in mind that you need more than 50% of your fellow leaseholders on board and that all additional criteria is met.