Service Charge Explained: A Leaseholder's Guide 2026
Few words cause more frustration among leaseholders than "service charge" — usually because the bill arrives with little explanation of what it actually covers. Here's a clear breakdown of what a service charge is, how it's calculated, and what to expect from a managing agent that does it properly.
What is a service charge, and what does it cover?
A service charge is the contribution leaseholders make towards the cost of maintaining and running the shared parts of their building — things like buildings insurance, communal cleaning and gardening, lift maintenance, communal utilities, and the managing agent's own fee. It is separate from ground rent, ground rent is a payment to the freeholder under the lease and is not linked to running costs.
Your specific lease sets out exactly what can and can't be recovered through the service charge, and in what proportion — which is why two buildings of a similar size can have quite different charges.
How service charge budgets are set
Each year, a managing agent should prepare an estimated budget covering anticipated costs for the year ahead, based on contracts in place, planned works, and any known upcoming costs. Leaseholders should receive this budget, and — depending on the lease — a year-end statement of actual expenditure, ideally certified by an accountant.
Routine costs: cleaning, gardening, insurance, utilities, minor repairs
Reserve/sinking fund contributions: saved towards future larger costs
Management fees: the cost of the managing agent's own services
Section 20 consultations: when they apply
If planned works or a long-term agreement will cost above a certain threshold per leaseholder, landlords and managing agents are legally required to consult leaseholders first, under Section 20 of the Landlord and Tenant Act 1985. This gives leaseholders the chance to see estimates, raise observations, and in some cases nominate contractors, before costs are committed.
Reserve funds: why they matter
A well-managed reserve (or sinking) fund smooths out the cost of large, infrequent works — a roof replacement or external redecoration, for example — so leaseholders aren't hit with a single enormous bill when the work eventually falls due. A building with little or no reserve fund is one of the clearest warning signs of poor long-term management.
What to do if you have concerns about your service charge
Start by asking your managing agent for a breakdown of the specific charges you're querying — a transparent agent should be able to explain any line item without difficulty. If concerns remain unresolved, leaseholders can apply to the First-tier Tribunal (Property Chamber) to determine whether a service charge is reasonable and payable.
Frequently asked questions
Can I refuse to pay my service charge?
Withholding payment is rarely advisable, even where you have genuine concerns, as it can lead to additional costs and breach of lease issues. It's better to raise concerns formally and, if unresolved, refer the matter to the First-tier Tribunal.
What's the difference between service charge and ground rent?
Service charge covers the actual cost of running and maintaining the building. Ground rent is a separate payment to the freeholder under the terms of the lease, unrelated to running costs.
How often should service charge accounts be published?
Most leases require an annual estimated budget and, often, a certified year-end statement of actual expenditure — check your specific lease for the exact timing and requirements.
Have a question about your building's service charge, or looking for a managing agent who'll actually explain it properly? Get in touch at hello@fortemproperty.co.uk or 020 3725 6755.