Service Charges Explained: A Leaseholder's Guide (UK 2026)

What is a service charge?

A service charge is the amount you pay as a leaseholder towards the cost of running the building you live in — communal repairs, buildings insurance, cleaning, lighting, lift maintenance, sometimes a managing agent, and a contribution to reserves. It is set out in your lease, governed by statute, and it is not optional.

It is also not the landlord's profit. Service charge money is held on trust under section 42 of the Landlord and Tenant Act 1987 and can only be spent on the services the lease specifies. If your building has a service charge of £2,000 a flat a year and twelve flats, the landlord or managing agent is sitting on £24,000 of leaseholders' money — not their own.

What service charges can and can't cover

The single most important sentence in this guide: your lease is the contract. What the service charge covers is whatever your lease says it covers — nothing more.

Typical inclusions:

• Buildings insurance for the structure and common parts
• Repairs and maintenance of the structure, roof and shared areas
• Communal cleaning, gardening, lighting, water and refuse
• Lift maintenance, fire safety equipment, door entry systems
• Managing agent fees (where one is appointed)
• Accountancy and audit fees for the service charge accounts
• Contributions to a reserve or sinking fund (if the lease allows)

What service charges cannot cover:

• Repairs to the inside of an individual flat (that's the leaseholder's responsibility)
• Improvements beyond what the lease requires (replacing a working roof with a green roof, for example)
• Costs the lease doesn't allow — even if "reasonable"
• The landlord's costs of dealing with their own internal admin

If a charge appears that isn't covered by the lease, you do not have to pay it. The lease is the test, not the budget.

How service charges are calculated

The mechanics are usually:

1. The landlord or managing agent prepares an annual budget for the coming year
2. The budget is divided between flats using the apportionment set out in the lease (often by floor area, sometimes equally, sometimes a fixed percentage)
3. Each leaseholder is sent a demand — usually half-yearly or quarterly
4. At the end of the year, actual costs are reconciled against the budget; you either owe a top-up or get a credit

The apportionment is fixed by the lease. You can't change it without varying the lease. If the lease says Flat 3 pays 12.5%, Flat 3 pays 12.5% — even if floor areas have shifted because of a loft conversion.

The annual cycle

Stage	What happens	When
Budget	Landlord/agent estimates next year's costs	Before the service charge year starts
Demand	Leaseholders billed their share	Usually two or four times a year
Year-end	Actual costs totalled, audited if the lease requires it	Within 6 months of year-end (good practice)
Reconciliation	Top-up demand or credit issued	After year-end accounts are finalised

If you've never been shown an annual budget or year-end accounts for your building, something has gone wrong. Both are basic.

Your statutory rights as a leaseholder

You have real, enforceable rights under the Landlord and Tenant Act 1985 that exist whether or not your lease mentions them.

Section 21 — request a summary of accounts

You (or the secretary of a recognised tenants' association) can request a written summary of service charge costs for the last accounting period. The landlord must provide it within one month of the request, or one month after the period ends, whichever is later. Failing to comply without reasonable excuse is a criminal offence.

Section 22 — inspect the invoices

Within six months of receiving a section 21 summary, you can require the landlord to give you reasonable facilities to inspect the underlying receipts and invoices — and take copies. This is the right that turns a vague summary into an audit you can actually do.

The reasonableness test (section 19)

Service charge costs are only payable to the extent they are reasonably incurred and the works or services are of a reasonable standard. "It's in the budget" is not a defence to an unreasonable charge.

If you think a charge is unreasonable — too high, the wrong contractor, or for work that wasn't needed — you can challenge it. The forum is the First-tier Tribunal (Property Chamber).

Section 20 consultation

If the landlord wants to carry out works or enter a long-term agreement that costs more than the statutory thresholds, they must consult leaseholders first. This is the Section 20 consultation procedure.

The thresholds:

• Qualifying works: more than £250 per flat in any one project
• Qualifying long-term agreements: more than £100 per flat per year, where the contract is over 12 months

If the landlord doesn't consult properly, the amount recoverable from each leaseholder is capped at £250 (for works) or £100 (for the agreement) — regardless of the actual cost. That's a hard cap, and it's why competent agents take consultation seriously.

The procedure has prescribed stages — notice of intention, notice of proposals, observations period, notice of reasons for decision — and there are formal time periods at each stage. Get it wrong and the cap bites.

Reserve and sinking funds

Most well-run blocks collect a contribution each year towards future major works — a new roof, redecoration, a lift replacement. This is the reserve (or sinking) fund.

Whether your building has one depends on whether the lease allows it. If the lease is silent, the landlord cannot collect reserve fund contributions. If it does, contributions are held on trust and can only be used for the purposes the lease specifies.

The case for a reserve fund: a £40,000 roof replacement in year 10 is much easier to handle if you've been collecting £4,000 a year for it than if you suddenly demand £3,500 per flat. The case against: large reserves managed badly are an easy target for mismanagement. The sensible middle is a transparent reserve fund with clear rules and an annually-published balance.

Service charge vs ground rent vs admin charge

These are three different things and they get confused constantly.

• Service charge — your share of the cost of running the building. Variable. Covered by sections 18–30 of the 1985 Act.
• Ground rent — a fixed annual sum paid to the freeholder for "the right to occupy". Capped at a peppercorn (£0 in practice) for new leases granted after 30 June 2022 under the Leasehold Reform (Ground Rent) Act 2022.
• Admin charge — a one-off fee for a specific service, e.g. consenting to a sublet or providing a leasehold information pack. Must be reasonable and is regulated under Schedule 11 of the Commonhold and Leasehold Reform Act 2002.

We've written a separate post comparing service charge and ground rent if you want the short version.

How to challenge a service charge

If you think a charge is unreasonable, the route is:

1. Ask — write to the landlord or managing agent setting out exactly which item you are challenging and why. Many disputes evaporate at this stage because the landlord realises the charge won't stand up.
2. Request the documents — section 21 summary, then section 22 invoice inspection.
3. Apply to the First-tier Tribunal (Property Chamber) — under section 27A you can ask the Tribunal to determine whether a service charge is payable, and if so how much. Application fees are modest (typically £100–£300) and you don't normally need a solicitor.

You can also withhold the disputed portion of the charge while the Tribunal application is pending — but only the disputed portion, and only if you've followed the procedure properly. Take advice before you withhold; getting it wrong can trigger forfeiture proceedings.

Common questions about specific charges

• "What is a service charge on a flat?" — the beginner explainer
• "Can my service charge go up every year?" — what's reasonable, what isn't, and what to do about it
• "Service charge vs ground rent" — the short, plain-English comparison

Where Proppa comes in

Most service charge disputes start with one of two things: leaseholders can't see where the money is going, or the accounts are a mess because the building is being run on email and spreadsheets.

Proppa gives small self-managed blocks (3–15 flats) one place to set the annual budget, log every spend against the right category, store the invoices, and share the accounts with leaseholders — so when bigger works come up and Section 20 applies, you've already got the paper trail in one place. It's built for blocks that don't need a managing agent but do need to do this seriously. Book a demo. First month free for founding blocks at launch.

Frequently asked questions

What does a service charge cover?

Whatever your lease says it covers — usually buildings insurance, communal repairs, cleaning, lighting, lift maintenance, fire safety, managing agent fees (if any) and reserve fund contributions (where the lease allows). The lease is the contract; the budget cannot extend beyond what the lease permits.

Can my landlord charge me anything they want?

No. Service charges are only payable to the extent they are reasonably incurred and the works are of a reasonable standard. You have the right to request a summary of accounts under section 21, inspect the underlying invoices under section 22, and apply to the First-tier Tribunal under section 27A to challenge unreasonable charges.

What is Section 20 consultation?

Section 20 of the Landlord and Tenant Act 1985 requires landlords to consult leaseholders before carrying out works costing more than £250 per flat or entering long-term agreements costing more than £100 per flat per year. If they don't consult properly, the recoverable amount is capped at those figures.

Can my service charge be capped?

There is no automatic cap. Some leases include a cap or RPI-linked increase mechanism — most do not. Your protection is the statutory reasonableness test, the section 20 consultation rules, and your right to challenge at the Tribunal.

How do I challenge a service charge I think is too high?

Write to the landlord first setting out what you are challenging. Request a section 21 summary and section 22 invoice inspection. If the dispute isn't resolved, apply to the First-tier Tribunal (Property Chamber) under section 27A for a determination of whether the charge is payable.

Who is responsible for collecting service charges?

The landlord — or, where the building is managed by a Residents' Management Company (RMC) or an RTM company, that company. The money must be held on trust under section 42 of the Landlord and Tenant Act 1987 and can only be spent on the services the lease specifies.

Do I have to pay service charges if I disagree with them?

You should never simply stop paying. Pay the undisputed portion and challenge the disputed portion through the proper route — usually a Tribunal application under section 27A. Withholding payment without following procedure can trigger forfeiture proceedings against your lease.