Service charge
In the context of property in England and Wales, a service charge is an amount payable by a leaseholder, as part of or in addition to rent, for services, repairs, maintenance, improvements, insurance, or the landlord's costs of management, where the whole or part of the charge varies according to the actual costs incurred. This is the statutory definition set out in Section 18 of the Landlord and Tenant Act 1985. Only variable charges fall within this statutory framework; fixed charges in a lease that do not vary with actual costs are not service charges in the legal sense and are not subject to the same statutory protections.
Service charges arise specifically in leasehold property, buildings where individual flats are held on long leases rather than owned outright. They do not typically arise in standard assured tenancies in the private rented sector; where a buy-to-let landlord owns a leasehold flat and lets it out, the service charge is a cost the landlord bears directly, which flows into rental pricing rather than being passed on separately to the tenant.
What a service charge typically covers
The precise scope of a service charge depends on the lease. Most residential leases allow the freeholder or managing agent to recover costs for: maintenance and repair of the building's structure and common parts (entrances, lifts, stairwells, roof, guttering); cleaning and lighting of communal areas; buildings insurance; garden maintenance; management fees; and contributions to a sinking fund for major future works. The sinking fund, also called a reserve fund, is the portion set aside for infrequent large expenditure, such as roof replacement or lift overhaul, rather than day-to-day running costs.
A landlord cannot recover costs that are not authorised by the lease, and in most cases cannot make a profit from service charges. Costs must relate to services actually provided.
The reasonableness requirement
Under Section 19 of the Landlord and Tenant Act 1985, service charges are only recoverable to the extent that the costs have been reasonably incurred and that any works or services have been carried out to a reasonable standard. This requirement applies both to the amount charged and to the quality of work done. Leaseholders who consider a charge unreasonable can apply to the First-tier Tribunal (Property Chamber) for a determination. According to gov.uk guidance on leasehold service charges, a landlord must give information about charges and cannot make it a criminal offence for a leaseholder to request a summary of costs.
Section 20 consultation
Where a freeholder plans works that will cost any individual leaseholder more than £250, or proposes a qualifying long-term agreement with a contractor where any leaseholder's contribution will exceed £100 per year, Section 20 of the Landlord and Tenant Act 1985 requires a formal consultation process. Leaseholders must be given advance notice, the opportunity to propose alternative contractors, and consideration of their observations before the decision is finalised. Failure to follow the Section 20 procedure caps what can be recovered at £250 per leaseholder (or £100 for long-term agreements), regardless of the actual cost. The sinking fund does not exempt the landlord from this obligation, Section 20 applies even where there are sufficient funds to cover the works.
The 18-month rule
Under Section 20B of the Landlord and Tenant Act 1985, a landlord must demand payment for service charge costs within 18 months of incurring them. If costs are not demanded within that period, and no notice was served on leaseholders within 18 months informing them that costs had been incurred and would later be recharged, the right to recover those costs is lost. Landlords who manage blocks should maintain precise records of expenditure dates and issue demands in a timely manner.
Demand formalities
A service charge demand is only legally valid if it includes the landlord's name and address (not just the agent's) and a summary of leaseholders' rights and obligations, as required by Section 21B of the Landlord and Tenant Act 1985. If either of these is missing, the leaseholder is legally entitled to withhold payment until a properly formatted demand is received.
Service charges for buy-to-let landlords
From working with self-managing landlords across the UK, we find that service charges are one of the most commonly misunderstood leasehold costs. If you own a leasehold flat and let it out, you, not your tenant, are the leaseholder responsible for paying the service charge to the freeholder. You cannot levy a separate service charge on your tenant under an assured tenancy; the Tenant Fees Act 2019 prohibits additional charges to tenants beyond those specifically permitted. The service charge should be factored into your rent from the outset.
Service charges are generally allowable as a business expense against rental income for tax purposes, provided they are wholly and exclusively incurred for the purposes of the letting.
Where leaseholders are dissatisfied with how service charges are being administered, they may have the right to take over building management directly through a right to manage company. For the changes to service charge transparency obligations introduced by the Leasehold and Freehold Reform Act 2024, see our guide to the Leasehold and Freehold Reform Act 2024.
Frequently asked questions
Is a service charge the same as rent?
No. Rent is payment for the right to occupy the property. A service charge is a separate, variable contribution to the costs of maintaining the building and its communal areas. In leasehold property, both are typically payable under the lease, but they are legally distinct obligations. Service charges are only recoverable to the extent they are reasonable; rent is recoverable in full under the lease terms.
Can I refuse to pay a service charge?
Leaseholders can withhold payment if the demand is not in the correct legal form (missing the landlord's name and address or the statutory summary of rights). Beyond this, a leaseholder who disputes the amount or reasonableness of a charge can apply to the First-tier Tribunal for a determination before or after paying — the Tribunal has power to decide whether any part of the charge is payable. Simply refusing without a legal basis risks enforcement action and may affect the leaseholder's right to challenge later.
Can a landlord profit from service charges?
No. Service charges are collected to cover costs actually incurred in managing and maintaining the building. A landlord cannot use service charges as a profit centre. Management fees within the service charge must themselves be reasonable.
