What is a service charge on a property and why should I pay it?

With regards to property, a service charge is where each household on a development or within a managed block of flats contributes a financial amount each year towards the upkeep of communal areas or a service that each household is benefitting from. Typically, a property service charge will cover things like the insurance of the building, repairs, and maintenance of communal areas such as lifts, drainage, and lighting in shared hallways.

The details of how the service charge is organised, the amount paid by each individual leaseholder, and details of how to pay, will be set out in the lease. The landlord (or sometimes a management company that is party to the lease) provides the services, while the leaseholders pay for them.

The landlord will often pay for the services temporarily until they can recover their costs via service charges. Traditionally, the costs of services were included in rental payments as fixed rate but, to ensure they recover all their costs every year, Landlords now base service charges on the estimated cost provided for works/services. Therefore, service charge costs will vary each year.

It is important to note that a service charge is completely unconnected to ground rent. Ground rent is rent paid under the terms of a lease by the owner of a building to the owner of the land on which it is built. A landlord will collect ground rent from each leaseholder. It is a specific requirement of a lease agreement and must be paid on the due date outlined. Service charges are payable by the leaseholder on a (usually)yearly basis for services rendered.

What does a property service charge cover?

Property service charges will cover all the services provided within shared areas of the building. Typically service charges will cover:

  • The cleaning and maintenance of communal areas.
  • Energy – electricity used for lighting communal areas and for things like lifts and power in shared areas. As well as water and heating where applicable.
  • Lift maintenance and repair.
  • Major repairs of communal areas.
  • Caretaking and security/maintaining door and gate entry systems.
  • Grounds maintenance/horticultural services.
  • Communal building insurance.
  • Estate management fees.
  • Bin hires.

Please note, this is not an exhaustive list. Instead, think of these examples as an indication of what would normally be included within property service charges.

Can I refuse to pay property service charge?

You can refuse to pay the property service charge, but in doing so you will be breaking the legal obligation to do so which would have been laid out within the lease you would have signed when purchasing your property. There are a few limited circumstances where a leaseholder may choose to withhold payment (despite being unadvisable) if they are not happy with the services provided and are in dispute with the landlord.

Falling behind with service charges or refusing to pay can lead to further action, including eviction and repossession.

How are property service charges calculated?

Service charges will usually be split between leaseholders in a property and the terms should be outlined in your lease agreement. It will state the amount you will have to pay either as a fixed amount each year, or it will say that the amount will change from year to year. When it comes to working out your share of the total costs, your landlord will usually divide the total cost of services to the block by the number of homes benefitting from those services.

Sometimes, a landlord may calculate charges based on the amount of living space your property takes up. For example, a two-bedroom flat with one bathroom may pay slightly less than a three-bedroom flat with two bathrooms, and so on. Generally, if all the properties within the block are of similar size, the cost will be divided equally.

Block management companies like Jennings & Barrett can be responsible for organising and collecting service charges on behalf of the landlord. If you are a landlord and would like us to take away the hassle and strain of managing service charges, we would be happy to help.