The risks of not writing a Will
Service charges are one of the most common causes of tension between landlords and leaseholders. In most cases, the dispute is not about whether costs have been incurred, but whether those costs can be recovered lawfully, fairly and without escalating into a formal challenge.
From a legal perspective, the position is clear. Your ability to recover service charges does not come from custom or convenience. It comes from the lease. If the lease does not permit a charge, it is not recoverable, regardless of how necessary or reasonable the work may appear.
Start with the lease
Any discussion about recovering service charges must begin with a careful reading of the lease. This document governs what services you are obliged to provide and, crucially, which of those costs can be passed on to tenants.
The lease will usually set out what services are recoverable, how the costs are apportioned between tenants and when payments are due.
It may also deal with whether charges are payable in advance, in arrears or by way of estimated payments followed by a year-end balancing charge.
Where reserve or sinking funds are permitted, the lease should explain the basis on which contributions are collected.
Where different tenants benefit from different services, the lease may require separate charging structures. If demands do not reflect the lease wording, they are more likely to be challenged.
Fixed and variable charges
Most modern leases provide for variable service charges, meaning charges are based on actual or estimated expenditure and can change from year to year. Older leases may still include fixed charges, which remain payable regardless of the underlying costs.
This distinction matters because variable charges are subject to statutory controls. In particular, the law requires that such charges are reasonable, both in amount and in the standard of work or services provided.
Reasonableness and evidence
The Landlord and Tenant Act 1985 places reasonableness at the heart of service charge recovery. It is not enough that costs were incurred. You must be able to justify them.
In practice, this means being able to explain why work or services were necessary, how contractors or suppliers were selected, how costs were monitored and what was ultimately delivered.
You are not obliged to choose the cheapest option, but you should be able to demonstrate that decisions were made responsibly and with proper oversight.
Good records are essential. They provide reassurance to tenants and significantly strengthen your position if a charge is questioned.
Consultation obligations
There are circumstances where you must consult leaseholders before committing to expenditure. Failure to do so can limit the amount you are entitled to recover, even where the work itself was justified.
Consultation is required before carrying out qualifying works that will cost any leaseholder more than £250 or before entering into qualifying long-term agreements where the cost exceeds £150 per leaseholder in any accounting year.
The consultation process is technical and prescriptive, so early advice is strongly recommended for major projects or long-term contracts.
Getting the demand right
Even where costs are recoverable and reasonable, recovery can still fail if the demand itself is defective. Service charge demands must be in writing and must include the landlord’s name and address.
Where the landlord is based outside England or Wales, an address within England or Wales for service of notices must also be provided.
Demands must also be accompanied by the statutory summary of rights and obligations in the prescribed form. If these requirements are not met, the tenant is not obliged to pay until they are.
Where payments are made to a management company named in the lease, slightly different rules apply, but clarity and consistency with the lease remain essential.
Time limits on recovery
Landlords must also be mindful of statutory time limits. Where costs have already been incurred, section 20B of the Landlord and Tenant Act 1985 generally requires that service charge demands are issued within eighteen months of the landlord becoming liable for the cost.
If that deadline is missed, recovery may be barred unless prior notice was given to tenants explaining that costs had been incurred and would be charged.
This is a common and costly trap, particularly on long-running projects or where invoices are disputed.
Holding service charge funds
Service charge monies and reserve funds are not general income. Where multiple leaseholders contribute, those funds must be held on trust under the Landlord and Tenant Act 1987.
In practical terms, this means keeping service charge funds separate, maintaining clear accounts and being able to demonstrate transparency.
Proper handling of funds does not just ensure compliance. It also reduces suspicion and resistance when demands are issued.
Responding to information requests
Leaseholders have statutory rights to information about service charges, including the right to request a written summary of costs and to inspect supporting documents such as invoices and receipts.
Failure to comply without reasonable excuse can lead to enforcement action and, in some cases, financial penalties. More importantly, it undermines confidence and increases the likelihood of formal challenge. Robust record-keeping makes compliance straightforward and disputes less likely.
Resolving disputes
Where disagreement cannot be resolved informally, either party may apply to the First-tier Tribunal (Property Chamber).
The tribunal can determine whether a service charge is payable, who should pay it, when payment is due, as well as whether the costs and standard of work were reasonable.
Tribunal proceedings take time and resources, so alternative dispute resolution, including mediation, is often worth exploring, particularly where the landlord and tenants have an ongoing relationship.
A practical conclusion for landlords
Recovering service charges is not about being forceful. It is about being transparent and legally compliant.
Landlords who rely on the lease, keep costs reasonable and well documented, consult where required, issue compliant demands on time and manage funds properly are far more likely to recover charges without dispute.
Handled correctly, service charges should form part of routine building management rather than becoming a recurring source of conflict.
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