Service charges

Service charges

Landlords can recharge the costs of providing certain services to residents.

For leaseholders, these will be the costs of communal services such as electricity and to maintenance and repairs to parts of the property and estate that are not outlined in your lease as your responsibility.

Examples include grounds and tree maintenance, repair and maintenance of the exterior, structure, roofs, foundations, window frames, guttering, communal drains and pipes and common areas, building insurance and the cost of management; this list is not exhaustive and you should check your lease for the full details of service charges payable.

Service charges are set by the landlord based on an estimate of likely costs in the coming year. At the end of the year the landlord must balance that estimate against their actual costs and either charge a balancing amount for any underpayment or reduce their next estimate by any overspend. Occasionally your lease may allow your landlord to transfer an overpaid amount to a reserve fund.

Ground rents

Ground rent is an additional charge that you may have to pay if you have a lease; it is a charge to rent the land your property is on from your landlord. The ground rent is normally set out in the lease.

The Leasehold Reform (Ground Rent) Act 2022 abolished ground rents for new, qualifying long residential leasehold properties in England and Wales. Ground rent in most new leases cannot legally be for anything more than “one peppercorn per year”. This “peppercorn rent” means that no money can be legally charged or paid as ground rent on leases regulated by this Act.

There are very few exceptions from the Act, which are:

• applicable community led housing
• certain financial products
• business leases which are defined by the Act as leases of commercial premises which include a dwelling, use of which substantially contributes to the business purposes

Statutory lease extensions for both houses and flats remain unchanged and are therefore exempt from the provisions of this Act. For existing leaseholders entering into voluntary lease extensions after commencement of this Act, the extended portion of their lease will be reduced to a peppercorn.

Rent and service charge arrears

If you get behind with your rent or service charge payments your home could be at risk. Your landlord will have a procedure for managing arrears and should provide you with a copy of it. You should take impartial advice if you fall behind with your payments and speak to your landlord at an early stage about repayment options.

Reasonableness and the First Tier Property Tribunal

The Landlord and Tenant Act 1985 (as amended) states that a service charge is only recoverable by a landlord so far as the costs have been reasonably incurred. Also, it states that it is only recoverable if works carried out for the charge are of a reasonable standard.

A leaseholder can challenge the reasonableness of a service charge if it does not comply with this, by applying to the First Tier Property Tribunal