What your service charge must cover, how it must be demanded, your statutory rights to information, the 18-month rule that makes costs irrecoverable, and how to challenge unreasonable charges at the First-tier Tribunal.
Service Charge Management →Key facts at a glance
A service charge is an amount payable by a leaseholder under their lease to cover the landlord's costs in managing, maintaining, insuring, and repairing the building and its common parts. The specific items that can be charged are defined by the lease — not by what the landlord considers reasonable or convenient. Items not permitted by the service charge provisions of the lease cannot be recovered regardless of whether they are reasonable costs.
Typical items include buildings insurance, communal utilities, cleaning and maintenance of communal areas, gardening, lift maintenance, fire safety compliance costs, managing agent fees, routine repairs, and reserve fund contributions.
Many leases require contributions to a reserve fund — money set aside to fund future major works such as roof replacement, external decorations, or lift renewal. Reserve fund contributions are held on trust, do not become the landlord's property, and are not refundable when a flat is sold unless the lease specifically provides for a refund.
A well-maintained reserve fund means major works can be funded without a large one-off special levy. An underfunded reserve fund — the consequence of years of inadequate contributions or misdirected funds — means leaseholders face a sudden large demand when the roof finally needs replacing. We see this consistently on takeover from poorly managed blocks.
Service charges are governed primarily by the Landlord and Tenant Act 1985. These rules apply regardless of what the lease says — they are statutory floors that cannot be contracted out of.
| Rule | What it requires | If not followed |
|---|---|---|
| Reasonableness | Costs must be reasonably incurred and works/services must be of a reasonable standard. The Tribunal can reduce charges it finds unreasonable. | Tribunal disallows unreasonable costs. Leaseholder not liable for the disallowed amount. |
| Lease authority | Only costs permitted by the service charge provisions of the lease can be charged. | Costs outside the lease are not recoverable regardless of reasonableness. |
| Prescribed demand form | Demands must be in writing and accompanied by a summary of leaseholder rights and obligations under LTA 1985 s.21B. | Demand is not a valid service charge demand. Leaseholder not liable to pay until a compliant demand is served. |
| 18-month rule | Costs incurred more than 18 months before demand is served are irrecoverable unless leaseholders were notified within 18 months of the cost being incurred. | Costs become irrecoverable. Lost permanently — cannot be re-demanded. |
| Accounts certification | Annual service charge accounts must be certified by a qualified accountant, confirming accounts are a fair summary of costs. | Non-certified accounts undermine recoverability and leaseholder confidence. |
| Trust obligation | Service charge money must be held in a designated trust account. Funds cannot be mixed with the landlord's own money. | Criminal offence. Client Money Protection breach. Leaseholders' funds at risk. |
Section 20B of the Landlord and Tenant Act 1985 provides that a landlord cannot recover a service charge cost if it was incurred more than 18 months before a demand for payment is served on the leaseholder — unless the landlord notified the leaseholder in writing within 18 months of the cost being incurred that the cost had been incurred and that they would be required to contribute to it.
This is not a technicality that is difficult to trigger. A managing agent who fails to issue demands or send year-end accounts promptly, who allows a gap between an accounting period ending and accounts being finalised, or who inherits a backlog from a previous agent can easily find that costs going back 18 months or more are irrecoverable.
A cost is incurred when the liability arises — typically when the service is provided or the work is completed and the invoice is raised, not when it is paid. The 18-month clock starts from when the work was done, not from when the agent got around to paying the contractor.
Issue annual service charge accounts promptly — within six months of year end as standard. Where there are delays, send a Section 20B notification letter to all leaseholders within 18 months of costs being incurred, identifying the costs and confirming they will be demanded. This preserves recoverability while accounts are being finalised.
Costs lost under the 18-month rule cannot be recovered. There is no mechanism to revive irrecoverable service charge costs. Once the 18-month period has passed without a compliant demand or a Section 20B notification, the cost is gone. This is one of the most common financial consequences of poor service charge management that we discover on block takeovers.
These rights exist independently of the lease and cannot be removed by the lease or by the landlord.
| Right | Who can use it | What it means |
|---|---|---|
| Summary of costs (s.21 LTA 1985) | Any leaseholder | Written summary of costs in any accounting period within the last 24 months. Must be provided within one month of request, or within 6 months of end of accounting period (whichever later). |
| Inspect accounts and receipts (s.22 LTA 1985) | Any leaseholder | Following receipt of a summary of costs, inspect the accounts, receipts, and other documents supporting the summary. Access must be provided within one month of request. Two months to inspect, free of charge. |
| Request management audit (s.76–84 CLRA 2002) | At least two thirds of qualifying tenants | Instruct a qualified surveyor to audit the management of the building. Landlord must provide access and information. Used where leaseholders have serious concerns about management quality. |
| Right to be consulted on major works (s.20 LTA 1985) | All leaseholders | Formal consultation before qualifying works above £250 per leaseholder. Three-stage process. Non-compliance caps recovery at £250. |
| Challenge at First-tier Tribunal (s.27A LTA 1985) | Any leaseholder | Apply to FTT for determination of whether service charge is payable and, if so, in what amount. Tribunal can disallow unreasonable costs. |
The First-tier Tribunal (Property Chamber) has jurisdiction to determine whether a service charge is payable and, if so, in what amount. Leaseholders can apply to challenge charges they consider unreasonable, not permitted by the lease, or incorrectly demanded.
Cost not reasonably incurred; works not of a reasonable standard; cost not permitted by the lease; demand not in prescribed form; or the 18-month rule applies and the cost is irrecoverable.
Can be made before or after payment. The Tribunal considers documentary evidence — the lease, accounts, invoices, contractor quotes — and may hear oral evidence. It can reduce or disallow costs it finds unreasonable.
This carries risk. A leaseholder in arrears can face County Court proceedings and in extreme cases forfeiture. The safer route is to pay under protest while the Tribunal application proceeds. Take specialist leasehold legal advice first.
The Tribunal can also award costs against the leaseholder. Applications to the First-tier Tribunal are not without risk. If the challenge is unsuccessful, or if the Tribunal considers the application was unreasonably brought, it can make a costs order against the leaseholder. Take legal advice before making a Tribunal application, particularly if the amount in dispute is small relative to the likely costs of proceedings.
| Failure | Consequence |
|---|---|
| Demand not in prescribed form — no summary of leaseholder rights | Demand invalid. Leaseholder not liable to pay until compliant demand served. |
| Costs incurred over 18 months ago with no Section 20B notification | Costs irrecoverable. Cannot be re-demanded. |
| Service charge funds held in shared account with other buildings | Trust obligation breached. Client Money Protection undermined. Funds at risk. |
| Accounts not certified annually | Recoverability undermined. Leaseholder confidence damaged. Tribunal likely to scrutinise. |
| Costs outside the lease's service charge provisions charged | Not recoverable regardless of reasonableness. Challenge likely to succeed. |
| No Section 20 consultation on qualifying works | Recovery capped at £250 per leaseholder per project. |
| Reserve fund spent on operational costs | Breach of trust. Fund depleted when needed for major works. |
| Year-end surplus not credited or carried forward as required by lease | Breach of lease terms. Leaseholders can challenge. |
Service charge money belongs to leaseholders, not to the landlord. Service charge funds are held on trust. They must be in a designated account, separately from the landlord's own money and separately from any other building's funds. A managing agent who pools service charge funds across buildings — as we have found on several block takeovers — is in breach of this obligation regardless of whether the overall balance is positive.
We manage service charges for residential blocks across London and Essex. Designated client accounts, certified annual accounts, online portal access for directors and leaseholders, and full transparency on every transaction. Whether you are a leaseholder with concerns or a director looking for better management, contact us.
Related guides
This website uses cookies. By continuing to use this site, you accept our use of cookies. Learn more
