Service charges explained: where the money goes, and how to keep it fair

Service charges are the single biggest source of friction in leasehold. Not because the idea is complicated, but because so often nobody explains it. A demand lands, the figure has gone up, and there’s no clear account of why. Multiply that by a whole building and you have the most common grievance in the sector.

The good news is that a service charge is not mysterious, and the rules around it are more on your side than you might think. Here’s what a service charge actually pays for, what your rights are as someone paying it, and, if you’re one of the people running the building, how to handle charges in a way that keeps everyone trusting the process.

What a service charge actually is

A service charge is simply the mechanism by which the shared costs of a building are divided among the people who benefit from them. Your flat is yours, but the roof over it, the hallway to it, the lift up to it and the insurance around it are shared. Someone has to pay to keep those going, and that someone is everyone, in proportions set by your lease.

A typical service charge covers things like maintenance and repair of the common parts, buildings insurance, cleaning and gardening, lift servicing, fire safety and other health-and-safety duties, and often a contribution to a reserve fund for big future costs like a new roof. The management cost of organising all this can be included too, but only if the lease actually says so.

That last point is the key to the whole subject. A service charge is not a blank cheque. It is defined and limited by your lease, and by law.

Your rights as someone paying it

If you pay a service charge, you have real statutory rights, and they’re worth knowing whether you’re questioning a bill or simply want to understand it.

Charges must be reasonable. Under the Landlord and Tenant Act 1985, a service charge is only payable to the extent the cost was reasonably incurred, and any work must be of a reasonable standard. You cannot be made to pay an unreasonable cost in full, and you cannot be charged for shoddy work as though it were good.

You can see the numbers. You’re entitled to a written summary of the costs that make up the charge, and to inspect the invoices and accounts behind that summary. A well-run building provides this readily. Reluctance to show the underlying figures is itself a warning sign.

You must be consulted on major works. If a single piece of work would cost any one leaseholder more than £250, the building must follow a formal consultation process before going ahead (the same applies to long-term contracts costing more than £100 a year). This isn’t a courtesy, it’s a legal requirement, and it exists so that nobody gets a surprise five-figure bill for a roof they were never told about. If the consultation is skipped, the amount that can be recovered from each leaseholder is capped at £250, however large the actual bill. It’s one of the most powerful protections leaseholders have.

You can challenge a charge. If you believe a charge isn’t reasonable or isn’t properly payable, you can apply to the tribunal to decide (the First-tier Tribunal in England, the Leasehold Valuation Tribunal in Wales). It’s a backstop rather than a first step, but it exists, and knowing it exists changes the tone of every conversation before it.

One honest note on where things are heading: the government confirmed in July 2026 that it intends to strengthen service charge transparency further, with standardised demand forms and clearer annual reports. Those changes are expected to arrive from 2027, so they’re coming rather than here. The rights above, though, apply now.

The part people miss: in a resident-run building, you are both sides

Here’s the twist that matters for our readers. If your building is run by an RTM company, a residents’ management company, or a resident-owned freehold company, then the body demanding the service charge is you and your neighbours. In law, for service-charge purposes, your company stands in the shoes of the “landlord.”

That means the rights above aren’t just things you can invoke against someone else. They’re duties your own company has to meet. You must keep charges reasonable, follow the consultation rules on major works, and be able to show residents exactly where their money went. It sounds like a burden. In practice it’s the opposite, because doing these things well is precisely what stops disputes before they start. (Our guide to resolving disputes with neighbours picks up where this leaves off.)

How to run service charges people actually trust

If you’re a director, the whole game is transparency. Residents rarely object to paying their fair share of a real cost. What they object to is being asked for money with no explanation. Get the following right and most trouble never materialises. This is the part of the job SavvyPlace was built to make easy, so it’s worth being specific about how.

Budget openly, before the year starts. Set out what you expect to spend, category by category, and share it. On SavvyPlace this lives on the finances page, where the budget, every demand and every actual cost sit in one place all residents can see. A charge that arrives with its reasoning attached is a charge people pay without a fight.

Talk the big decisions through, then put them to a vote. When something significant is on the table, a major repair, a change of contractor, next year’s budget, decide it in the open rather than in a corridor. SavvyPlace has a Forum for exactly this: anyone in the building can start a thread to raise an issue, idea or question, and when a decision is needed a director can attach a structured vote to it. A choice people were part of is a choice people accept, and the thread is a permanent record of how it was reached.

Handle major works carefully. If a single job will cost any leaseholder more than £250, the law requires a formal Section 20 consultation, and running that process correctly is your responsibility as the building’s manager. What SavvyPlace does is make the surrounding work easier: share the proposal and the quotes in the Forum, let residents put forward their own contractors, and keep the whole discussion and the vote on the record. The consultation is a legal duty; doing it openly is what turns “why am I paying £4,000?” into “we all agreed to this.”

Let residents weigh in on who does the work. Trust in a service charge is partly trust in the people it pays. SavvyPlace has a Contractors feature where you manage the tradespeople you use and link them to maintenance jobs, and residents can leave comments on them, whether someone was reliable, called ahead, did a tidy job. A good plumber gets remembered and a poor one gets flagged before they’re booked again, which keeps the choice of who does the work accountable to the people paying for it.

Keep a reserve fund, and explain it. Money set aside for the eventual roof or the future redecoration spreads big costs over time instead of landing them on whoever happens to own the flat that year. People contribute far more willingly when they understand what the reserve is protecting them from. (Our guide to the first 90 days of running your building covers setting these foundations from the start.)

Keep it all in writing. Decisions, budgets, accounts, consultation notices: kept, dated, and reachable in one place, so that when someone asks a question in two years’ time the answer is a click away rather than a rummage through an inbox.

The bottom line

A service charge is not a tax and not a mystery. It’s the shared cost of a shared building, divided fairly and spent accountably. Whether you’re paying one or setting one, the same principle runs underneath it: reasonable costs, clearly explained, openly accounted for.

Buildings that get this right rarely argue about money. Buildings that get it wrong rarely argue about anything else. The difference is almost never the size of the charge. It’s whether people can see where it went.

Service charge law as described here applies in England and Wales only. The £250 and £100 consultation thresholds are the figures in force at the time of writing, and the transparency reforms mentioned above are subject to parliamentary process and may change.