What are service charges?

If you have a long lease of a flat or a house, you will probably be familiar with service charges. They are the sum paid annually by each leaseholder in a block or on a development, to fund the upkeep of areas or to pay for a particular service, which benefits all the contributing properties. The service charge will be your share, as defined in your lease, of the service costs incurred by your landlord or management company. Usually, you will be obliged to pay sums on account of the estimated service costs for the following year, with an accounting reconciliation process at the end of each year.

What can my landlord charge me for?

The services which can be charged for will be set out in your lease. You will not be responsible for charges unless they are specified in the lease. Typically, service charges include the cost of insuring the building, cleaning and lighting communal hallways and stairs, and tending to and maintaining external areas such as gardens and paths. If there are unadopted services such as drains or an estate road, their maintenance costs will almost certainly be included, as will management costs.

Often, a contribution is required to a reserve or sinking fund to spread the cost of more occasional but expensive work such as roofing works. If you sell your home before this fund has been spent, you will only receive a refund if that is provided for in your lease, which is unlikely, or your buyer agrees to reimburse you.

Average service charge for flats

While every block is different, service charges are typically in the region of £1,000 to £2,000 per year for most flats. However, for new-build flats and for those in London, you can expect the service charge to exceed £2,000.

Service charge disputes

You should not pay too much in service charges, and if you are a long leaseholder, there is a great deal of legislation in place designed to protect you. In principle, you should only pay service charges that are reasonable. This includes your share of service costs that are both reasonably incurred, and reasonable in amount.

Service costs would be unreasonably incurred if they relate to work that is not needed. For example, if the building’s windows could have been satisfactorily repaired, but were replaced at greater cost, you would not have to pay the extra cost associated with replacement.

Service costs would be unreasonable in amount if the work could have been completed at a significantly lower cost. This does not require the landlord or management company to procure the work at the lowest cost possible, but if it could have been done for, say, half or two-thirds of the actual cost, you may have grounds to succeed in avoiding paying the extra cost. An example would be where the work was initially done poorly, requiring repeat or remedial work at extra cost. In principle, your share of the resulting extra cost would not be payable.

In addition, leases are sometimes poorly drafted, which can lead to disputes, particularly when the parties have each been working on the basis of their own interpretation of what should be paid. The court or Tribunal will reach a decision based upon what they believe the parties have agreed in the lease, or intended to agree, which can differ from what the parties should have agreed, even where that appears unfair or even disastrous for one of the parties.