Understanding Service Charge Demands: A Guide for Leaseholders in England

What is a service charge?

If you own a leasehold flat, you pay service charges to cover the cost of maintaining and managing the building and its communal areas. These typically include building insurance, cleaning, maintenance, repairs, gardening, and the managing agent's fee. Service charges are governed by the Landlord and Tenant Act 1985, which requires them to be reasonable and backed by proper accounting. This guide describes the law as it applies in England; Wales shares the primary legislation but differs procedurally, and Scotland and Northern Ireland have separate regimes.

Service charges are either fixed (set in the lease) or, more commonly, variable - meaning they change each year based on actual or estimated expenditure. Variable charges are the ones that generate most confusion and most disputes.

What should a service charge demand contain?

Under Section 21B of the Landlord and Tenant Act 1985, a valid service charge demand must be accompanied by a summary of rights and obligations in the prescribed form. Without this summary, you may withhold payment until it is provided, and your lease's late-payment provisions (such as interest) cannot be enforced for the period you properly withhold. Once the landlord serves the summary, the charge becomes payable again.

A proper demand should include:

• The name and address of the landlord - the managing agent's details are not a substitute. Section 47 of the Landlord and Tenant Act 1987 requires the landlord's own name and address, and Section 48 requires an address in England and Wales for serving notices; until both are given, the service charge is treated as not due
• A breakdown of what the charge covers - building insurance, maintenance, management fees, etc.
• The period the charge relates to (typically a service charge year)
• An on-account (estimated) or actual (reconciled) figure
• The statutory summary of rights and obligations

If the demand lacks any of these elements, you should write to the freeholder or managing agent and request the missing information before paying.

On-account payments vs. year-end reconciliation

Most buildings operate on an on-account basis: you pay estimated charges at the start of the year (often in advance, monthly or quarterly), and at the end of the year the managing agent reconciles actual expenditure against estimates.

If the actual spend was lower than estimated, you receive a credit - either applied to the following year or refunded. If it was higher, you receive a balancing demand for the shortfall.

You can require a written summary of relevant costs under Section 21 of the Landlord and Tenant Act 1985 - the landlord must supply it within one month of your request (or six months of the year end, if later), certified by a qualified accountant where the block has more than four contributing dwellings. Well-run blocks provide year-end accounts as a matter of course. Having obtained the summary, Section 22 then lets you inspect the underlying accounts, receipts and other supporting documents (see the challenge section below).

One time limit worth knowing at reconciliation stage: under Section 20B, costs incurred more than 18 months before a demand is served are not recoverable, unless you were notified in writing within those 18 months that the costs had been incurred and a contribution would be required. Late balancing demands should always be checked against this rule.

Reading budget vs. actuals

The most useful document a managing agent can provide is a budget vs. actuals comparison - a table showing what was budgeted for each line item and what was actually spent. This makes it immediately apparent where money went, where costs overran, and whether the agent is managing expenditure effectively.

Key things to look for:

• Large variances - if actual spend is significantly above budget for a category, ask why. Was there an emergency repair? Was the budget simply too low?
• Management fee - often expressed as a percentage of the total expenditure or a fixed annual sum. Check it matches your lease.
• Reserve/sinking fund contributions - money set aside for future major works, held on statutory trust. Check it's being collected and not raided for day-to-day costs.
• Insurance - the building should be insured for full reinstatement value. You're entitled to see the policy schedule.

What is Section 20 - and why does it matter?

Section 20 of the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002) requires landlords and managing agents to consult leaseholders before carrying out qualifying works that will cost any one leaseholder more than £250, or entering into a long-term qualifying agreement costing more than £100 per leaseholder per year.

The Section 20 consultation process has three stages:

• Notice of Intention - describing the proposed works, inviting observations within 30 days, and inviting leaseholders (or a recognised tenants' association) to nominate a contractor
• Notice of Estimates - at least two estimates (one from a contractor wholly unconnected with the landlord, and including any contractor nominated at stage one), inviting further observations within 30 days
• Statement of Reasons - if the chosen contractor was neither nominated nor the cheapest, the landlord must explain the choice within 21 days of entering the contract

If a landlord fails to follow the Section 20 process, they cannot recover more than £250 per leaseholder for those works through the service charge, however much was spent - unless the First-tier Tribunal grants dispensation from consultation under Section 20ZA, which it may do where leaseholders have suffered no real prejudice. This is a significant protection and a common source of disputes.

How to challenge a service charge you think is wrong

Leaseholders have several avenues to challenge service charges they believe are unreasonable or incorrectly calculated:

1. Write to the managing agent or freeholder

Start by requesting a detailed breakdown and copies of supporting invoices. Most disputes can be resolved at this stage if the managing agent is responsive. Keep all correspondence in writing.

2. Inspect the accounts

Within six months of receiving a Section 21 summary of costs, you can require the landlord in writing to provide facilities to inspect the accounts, receipts and other supporting documents (Section 22 of the Landlord and Tenant Act 1985). The landlord must provide them within one month and keep them available for two months, free of charge.

3. Apply to the First-tier Tribunal (Property Chamber)

The First-tier Tribunal (FTT) - formerly the Leasehold Valuation Tribunal - can determine whether a service charge is payable and, if so, in what amount. Applications are relatively straightforward and do not require legal representation, though it helps. The Tribunal can also determine whether costs were reasonably incurred, whether works were carried out to a reasonable standard, and whether Section 20 was properly followed.

4. Withholding payment - proceed carefully

While you have the right to challenge charges, withholding payment without Tribunal authority is risky. Unpaid service charges can lead to forfeiture proceedings - a serious consequence that can ultimately result in loss of your property. If you intend to withhold payment, seek legal advice first and consider paying "under protest" while the dispute is resolved.

References and further reading

• Landlord and Tenant Act 1985 - primary legislation governing service charges in England and Wales, including Section 19 (reasonableness) and Section 20 (consultation)
• LEASE - Service Charges and Other Issues - free, impartial advice from the Leasehold Advisory Service
• RICS Service Charge Residential Management Code (4th edition) - professional standard for managing agents, effective 7 April 2026
• First-tier Tribunal (Property Chamber) - for formal disputes about service charge reasonableness

One thing to watch: the Leasehold and Freehold Reform Act 2024 will introduce a standardised service charge demand form and annual reports to leaseholders once its service charge provisions are brought into force. The rules described above remain the operative law until then; we will update this article when that changes.

Service charges are one of the most contested areas of residential leasehold law. The more visibility you have over your block's finances - budgets, actuals, invoices, and correspondence - the better placed you are to spot problems early and resolve them before they escalate.

Marklet is block management software for UK directors and leaseholders - with built-in service charge monitoring, invoice flagging, and budget vs actuals tracking so you always have the evidence you need to challenge a demand with confidence.