Not many leaseholders are familiar with the legalities of owning a leasehold property in terms of Service Charges.

Service charges are one of the principle areas for dispute between leaseholders and their landlords and The Leasehold Advisory Service have published a document (available for download at the bottom of this article), that sets out the provisions the law has made in relation to various matters including:

• the setting and recovery of service charges;
• the rights of both the leaseholder and the landlord to challenge or substantiate the charges before a Leasehold Valuation Tribunal;
• the obligations placed upon the landlord to consult the leaseholders before carrying out qualifying works or entering into long-term agreements;
• the statutory controls on demands;
• accounting for the charges

What are service charges?

Service charges are levied by landlords to recover the costs they incur in providing service to a dwelling. The way in which the service charge is organised is set out in the tenant’s lease or tenancy agreement. The charge normally covers the cost of such matters as general maintenance and repairs, insurance of the building and, where the services are provided, central heating, lifts, porterage, lighting and cleaning of common areas etc. The charges may also include the cost of management by the landlord or by a professional managing agent and for contribution to a reserve fund.

Details of what can or cannot by charged by the landlord and the proportion of the charge to be paid by the individual leasholder will be set out in the lease. The landlord or, somtimes, a management company that is party to the lease, provides the services, while the leaseholders pay for them. The landlord will generally make no financial contribution for the services, but sometimes he has to pay for the services before he can recover their costs.

Some landlords levy charges for consents to make alteration or provide information when a property is being sold. These are administration charges and are dealt with separately.

Fixed or variable service charges?

Originally, the costs of services were included in rental payments, but as costs and inflation escalated, landlords wanted to make sure they recovered all their costs every year. Some old leases still provide for a fixed charge to be levied. These charges cannot be varied, regardless of the actual costs to the landlord. However, most service charges are based on the actual or estimated costs of the services and thus vary from year to year. These are known as variable service charges.

You can download more information on service charges by clicking here