Leasehold service charges

What is a leasehold property?

Leasehold property is property that is leased from the freehold owner (ie the party that owns the whole property, including the land the property stands on). The freehold owner is commonly known as a ‘freeholder’ or the ‘landlord’. 

Leaseholds grant the leaseholders a right to use and occupy the property for a fixed term. This right needs to be renewed periodically. 

Most flats are owned as leasehold properties and many houses are too, particularly those purchased through shared ownership schemes. Leasehold properties come with various legal obligations for the leaseholder, one of which is paying the service charge.

For more information, read Freehold and leasehold property.

What are leasehold service charges?

What can be included in leasehold service charges?

Leasehold service charges can cover a wide range of expenses. Examples of expenses that a freeholder might incur, which they can require contributions to via service charges, include the costs of:

• repairs to the outside of a building that contains flats, including issues with the roof or external walls or structural issues

• issues relating to drainage and water mains connections

• cleaning of common parts of a shared building

• gardening of shared grounds

• maintenance of a lift

• buildings insurance

• management charges or administration fees

• sinking funds

Your lease should specify all regular maintenance charges and the types of services which can be subject to additional charges (eg unexpected building repairs due to storm damage). You do not have to pay for services that are not set out in your lease. You do normally have to pay legitimate leasehold service charges even if you don’t use some of the services covered by the charges.

If you have any questions or concerns about the service charges detailed in your lease, you can seek advice from the Leasehold Advisory Service (LEASE).

What cannot be included in leasehold service charges?

This only applies in England.

Under the Building Safety Act 2022, freeholders cannot use leasehold service charges to recover certain costs incurred to deal with safety defects in relevant buildings. A building is a relevant building if it:

• is over 11 metres or 5 storeys in height (whichever is reached first)

• contains at least 2 dwellings (eg 2 flats), and

• is not a leaseholder-owned building (ie the freehold is not owned by a residents’ freehold company)

For more information on ‘relevant buildings’ for the Building Safety Act 2022, see the government’s guidance.

What are sinking funds?

What is ground rent?

Ground rent is different from leasehold service charges.

Ground rent is a payment that a leaseholder may have to make to a freeholder (it may be collected by the management company). It is a charge the leaseholder pays for ‘leasing’ the land their property is on from the freeholder. The freeholder does not have to provide services in return for ground rent.

Ground rent law was reformed in 2022 under the Leasehold Reform (Ground Rent) Act 2022. For leases granted before 30 June 2022, ground rent doesn’t have to be paid unless the freeholder sends a formal, written ground rent demand. For leases granted on or after 30 June 2022, you cannot be charged more than a ‘peppercorn’ ground rent. In reality, this means that you do not have to pay ground rent.

For more information, see the government’s guidance on leasehold property.

When are leasehold service charges paid?

Leasehold service charges are normally paid annually. However, payment can be required more frequently, depending on what is set out in your lease. 

Before asking you to pay service charges, a freeholder has to formally request payment. This formal request must be in writing and include:

• the freeholder’s name

• the freeholder’s address, and

• a summary of the leaseholder’s rights and obligations

 For more information on the summary of rights and obligations, see LEASE’s guidance.

How much are leasehold service charges?

Leasehold service charges are variable charges. This means that they generally vary from payment period to payment period. 

There is no specific limit on leasehold service charges, however, freeholders can only recover reasonable service charges.

Your lease should clearly set out:

• how the leasehold service charges are calculated

• how the leasehold service charges are divided between all leaseholders, and

• whether there is a sinking fund

Always check your lease to see what it says about service charges.

If a charge is fixed (ie if it is always the same) it is not a leasehold service charge. This is because the charge is fixed and, as a result, does not vary according to the cost of a service.

What rights do I have in relation to leasehold service charges?

If you pay leasehold service charges you have certain rights, including the right to request:

• a summary of how the leasehold service charges were worked out

• a summary of what the leasehold service charges were spent on, and

• to see any paperwork that supports the summary of service charges (eg receipts from tradespeople)

If you request such information, this must be provided to you. The freeholder commits a criminal offence if they do not provide this information.

Does the freeholder have to consult me?

In certain circumstances, you have the right to be consulted about leasehold service charges. Your freeholder must consult you if:

• they intend to carry out works that will cost you more than £250 per year, or

• you have to pay more than £100 per year for services lasting more than one year

Your freeholder has to follow a set consultation process, known as a ‘Section 20 Consultation’. You have the right to comment on proposals and to suggest alternative contractors. If you have not been consulted properly, there’s a limit on how much you can be charged.

For more information, see LEASE’s guidance on Section 20 Consultations. 

How can service charges be challenged?

As a leaseholder, you may be able to challenge service charges (including proposed charges) by applying to the First-Tier Tribunal (Property Chamber - Residential Property). You can only challenge service charges when: 

• they are variable charges (not fixed charges)

• you consider the charge to be unreasonable

• you think that the standard of work which relates to a charge is unsatisfactory (eg if a roof has not been properly repaired), and

• you believe you should not be paying the service charge

For more information, see LEASE’s guidance on service charges and other issues.

What is a Landlord Certificate?

This section only applies in England.

Under the Building Safety Act 2022 and subsequent regulations (eg The Building Safety (Leaseholder Protections etc.) (England) (Amendment) Regulations 2023), freeholders may need to provide a Landlord Certificate for ‘qualifying leases’ of relevant buildings.

A Landlord Certificate must be provided:

• where the freeholder wants to pass on part of repair costs (known as ‘remediation costs’) onto you (ie the leaseholder) through a leasehold service charge

• within 4 weeks of you giving the freeholder notice that your leasehold interest is to be sold

• within 4 weeks of the freeholder becoming aware of a relevant defect which wasn’t covered by a previous Landlord Certificate

• within 4 weeks of a Landlord Certificate being requested by the leaseholder 

The Landlord Certificate must:

• be signed by the current freeholder on the date the Landlord Certificate is signed

• be based on the circumstances of whoever was the relevant freeholder on 14 February 2022

• be in the correct form (ie using the template in The Building Safety (Leaseholder Protections etc.) (England) (Amendment) Regulations 2023), and

• contain all relevant information and be supported and accompanied by the specific evidence outlined in the government’s guidance

If the relevant freeholder fails to provide a Landlord Certificate in the required form, their leaseholder does not need to pay any leasehold service charge.

For more information, see the government’s guidance on leaseholder protections amendments. Do not hesitate to Ask a lawyer if you have any questions.

Service charges in Scotland

In Scotland, service charges are known as ‘factoring fees’, ‘factor fees’ or ‘factor charges’. These cover the costs of a ‘property factor’s’ activities. A ‘property factor’ (less commonly called a ‘property manager’) manages common land in and around residential properties. Examples of the work a property factor can carry out include:

• arranging for annual property inspections and dealing with any problems revealed

• making arrangements for one-off maintenance and repair works

• organising common insurance for the property

• organising contracts for the property (eg for lift repairs or gardening works)

Property factors operating in Scotland are required to:

• join the Scottish Property Factor Register before they can operate, and

• follow a code of conduct once they've registered

If a homeowner in Scotland believes there has been a breach of the code of conduct or their property factor has failed to carry out their duties, they should first complain in writing to the property factor. If this doesn’t resolve the issue, they can apply to the First-tier Tribunal for Scotland Housing and Property Chamber.