Service charges are payments made by leaseholders to the freeholder or management company to cover building maintenance, insurance, and management costs. As a buy-to-let landlord who owns a leasehold flat or house, you are the leaseholder, you pay service charges just as a resident owner would. Your tenant does not pay them directly to the freeholder; you do, and this is a significant ongoing cost that must be budgeted for carefully.
Service charges cover the cost of maintaining the building and common areas. Ground rent is a separate periodic payment to the freeholder set out in the lease. The Leasehold Reform (Ground Rent) Act 2022 prohibits ground rent above a peppercorn on new qualifying leases from 30 June 2022, but does not affect pre-2022 leases.
What service charges can cover
- Buildings insurance, the freeholder insures the block as a whole; the cost is recoverable through service charges. You cannot substitute your own landlord policy.
- Common area maintenance and repair; hallways, lifts, roofs, external walls, communal gardens, car parks.
- Major works; roof replacement, window replacement, cladding remediation. Costs exceeding £250 per leaseholder require a Section 20 consultation.
- Management fees, payable to a managing agent or RTM company.
- Reserve/sinking fund, regular contributions towards anticipated future major works.
- Cleaning, security, concierge, in managed blocks.
- Professional fees; accountancy, surveying, legal fees incurred in connection with building management (subject to reasonableness).
The reasonableness test
Under Section 19 of the Landlord and Tenant Act 1985, service charges are only recoverable if they are reasonably incurred and the services or works are of a reasonable standard. The First-tier Tribunal (Property Chamber) has jurisdiction to determine whether a charge is reasonable and can substitute a lower figure if it is not.
Section 20 consultation, major works
If the freeholder proposes major works costing more than £250 per leaseholder, they must follow a two-stage statutory consultation process: a Notice of Intention inviting contractor nominations, followed by a Notification of Estimates with at least two quotes. Failure to consult caps the recoverable charge at £250 per qualifying works project, regardless of actual cost. This is a powerful protection against inflated or poorly tendered major works.
Ground rent and the Leasehold Reform (Ground Rent) Act 2022
The 2022 Act prohibits freeholders from charging more than a peppercorn ground rent on new qualifying leases granted from 30 June 2022. Pre-2022 leases are not affected, doubling clauses in older leases remain binding. The primary route to convert a pre-2022 ground rent to a peppercorn is a statutory lease extension under the 1993 Act, which adds 90 years and reduces ground rent to zero from the extension date.
Challenging service charges at the FTT
- Any leaseholder can apply to the First-tier Tribunal (Property Chamber) to determine whether a service charge is payable and in what amount.
- Request the Section 21 statement of costs and supporting invoices before paying any disputed increase. Refusal to provide these is a criminal offence.
- Always ask for a 'section 20C order' in any FTT application to prevent the freeholder recovering their legal costs through future service charges.
- Demands must be accompanied by a prescribed summary of rights or the payment is not legally due.
LetSafe UK's Compliance Checklist (LS-E-020) covers the obligations landlords must meet before letting any property, including leasehold-specific checks such as subletting consent and notice of assignment requirements.