A service charge is a payment made from leaseholders to the landlord, which covers the cost of maintenance, management, and other services required within a building.
For a service charge to be considered reasonable, The Landlord and Tenant Act 1985 states that cost must have been ‘reasonably incurred’ and the services carried out must have been done to a ‘reasonable standard’.
If you are a landlord and you want to ensure that the service charge your tenants are receiving is reasonable, or if you are a tenant who believes that your service charge is overpriced, it is important to understand your rights and the ins and outs of a service charge.
What do service charges cover?
A service charge typically covers services like:
- General maintenance
- Repairs
- Building insurance
- Central heating
- Lift maintenance
- Porters
- Management services
- The maintenance and electricity for common areas
The specifics of a service charge are generally set out within your lease or tenancy agreement, but if you are struggling to find any details, tenants can make a written request to their landlord for this information. This request must be accommodated.
Who sets service charges?
A landlord may set out service charges for the following year in the tenancy/lease agreement. The agreement should include details of what is being paid for with the service charge and how that charge is being split between the residents of a building.
Because a service charge is based on the estimated cost of services, the price can vary from year to year. However, any increases must be reasonable, or the leaseholder has the right to challenge the change in price.
How are service charges calculated?
In the UK, the average service charge for a flat is between £1,000-£2,000 per year, although this number can differ depending on the size, age, and location of the property.
Service charge is calculated based on estimated running costs. This is done by combining three key categories, including:
- The cost of day-to-day maintenance. For example, cleaning, insurance, and staff wages.
- Cyclical expenses like decoration and the upkeep of pipes, drains, electrical wires, etc.
- Reserve funds which cover the cost of less frequent repairs like structural damage or a roof restoration.
Additional charges may vary from year to year. This is to account for surprises, expenses that were not included in the previous year, changes in management, etc.
Can you refuse to pay service charges?
Because a service charge is a legal obligation written into a lease or tenancy agreement, there must be a valid reason to refuse payment.
However, it is possible to pay under protest. This means that when a tenant pays a service charge, they can formally state that they are complying but object to the charge. Paying under protest allows tenants to dispute a payment later without breaching their contract.
To do this, you must provide the landlord with written confirmation that you are protesting the service charge. It should be a thorough letter that includes information like:
- The amount the landlord is requesting
- The date
- A signature
- Why you are objecting
- The fact that you are paying under protest and that you hold the right to dispute the charges.
(If you are experiencing financial difficulties and are unable to pay a service charge, contact your landlord or management company to discuss your options before legal action is taken.)
How can you challenge service charges?
It is possible to dispute the service charge if the tenant believes that it’s an unreasonable amount for the services being provided. On the other hand, if a tenant is withholding a service charge without cause, landlords should contact service charge recovery solicitors for legal guidance.
Both the tenant and the landlord have the right to apply to the First-tier Tribunal (or the Leasehold Valuation Tribunal for Wales) to decide whether a service charge is unreasonable.
To gain a Tribunal, submit the appropriate application form along with a copy of the lease/tenancy agreement. Details for the tenant the landlord and anyone else involved should also be included.
The Tribunal can then determine who is responsible for paying the service charge, how much should be paid, the date of payment, and the way it should be received.
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For expert legal advice regarding any aspect of service charges, please get in touch.
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