What are service charges? Everything you need to know

Service charges can be a confusing aspect of UK housing, especially if you’re a leaseholder or renting a flat. Plenty of homeowners and tenants are surprised when they first encounter service charges – they’re an added cost that can vary widely depending on a lot of factors, and often mean paying an extra few thousand on top of your rent or mortgage.

The increased cost of living has driven the price of nearly everything skyward, and these charges are no different. They rose by around 8% between 2022 and 2023, according to estate agents Hamptons, bringing average service charges for a flat to £1,431 or £119 per month.  

Understanding the charges is an important part of both renting and owning property in the UK, so it’s crucial to stay informed about them to help budget effectively and avoid any unpleasant surprises.

What does a service charge include?

Service charges are payments made by the owners or leaseholders of a property, typically to the landlord, to cover the cost of maintaining communal areas and other building upkeep. 

This usually covers routine jobs like cleaning hallways, maintaining gardens and repainting external walls, as well as more significant repairs such as roof replacements or structural fixes. Lighting in communal spaces and lifts are paid for through service charges too. It shouldn’t go towards the costs your landlord might incur from as-needed repairs as a result of fair wear and tear, nor should it cover the expensive of other landlord duties like gas safety checks.

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Building insurance for the structure itself tends to be covered by the service charge, particularly in blocks of flats, but remember to arrange personal contents insurance for yourself.

If the building is being managed by a person or a company who oversees the day-to-day running of it, their fees usually come out of the service charge. The details of what your service charge covers should be laid out clearly in your lease or tenancy agreement, so it’s always worth checking the fine print if you’re unsure.

Service charges for flats

Service charges are commonly associated with flats, primarily because many of the services covered (like maintenance of communal areas or structural repairs) are shared between households in the building. Unlike houses, where each homeowner is responsible for their own upkeep, flats have shared responsibilities that require everyone to contribute financially.

The payment schedule for charges can vary. Some people have to pay their service charge monthly, alongside their rent or mortgage payment, while others might pay it annually or quarterly. The frequency of payments is typically set by the managing agent or landlord and will be detailed in your lease.

Charges aren’t typically included in your rent, but usually added on top of the rent you pay to the landlord. They might pay the service charge directly to the managing agent, but they’ll likely recoup the cost from you in the form of higher rent. Some landlords might break this down on your tenancy agreement while others will note it down as a lump sum, so it’s a good idea to ask for clarification if you’re uncertain what the terms mean in your own contract.

If you own a flat on a leasehold basis, the charges are a separate cost from your mortgage and other bills. You’ll be responsible for paying these charges directly to the managing agent or freeholder.

Leasehold service charges

Leaseholders don’t own the land their property sits on, which means they have to pay a freeholder or managing agent for the upkeep of the building and communal areas.

Like with rented flats, leaseholders can be asked to pay service charges monthly, annually or in instalments throughout the year. The payment structure is usually decided in advance by the person or company managing the building. It’s common for managing agents to send out an annual service charge demand, but in some cases payments might be spread out to make it easier for leaseholders to manage the costs. The charges can fluctuate year on year depending on the property’s needs.

Disputes can sometimes arise over what’s included in the service charge, and leaseholders might question whether they’re getting value for money. You have the right to challenge these charges in court if you believe they’re unreasonably expensive or unjustified. 

How much is a service charge?

The amount you’ll pay in service charges will depend on the type of home you live in, where it is and how well it’s managed. They generally range from a few hundred pounds a year to several thousand. Service charges tend to be steeper in London and other high-demand urban areas, where property prices are higher and buildings are more complex.

The average service charge for a flat in the UK is roughly £1,500 per year, though this can be much higher in more expensive areas or for properties with luxury amenities like gyms, concierge services or private gardens. People living in London often have to pay service charges topping £2,000.

Another important factor to consider when dealing with service charges is what are known as major works and how these can affect the amount you’re required to pay. Major works refer to serious repair or renovation projects that go beyond routine maintenance. These might include upgrading a lift system or extensive repairs to the building’s exterior. A portion of service charge payments are sometimes set aside for any unexpected and significant repairs the building might need in future, but the costs are often passed on through an extra service charge referred to as a special charge or major works charge.

The law requires that freeholders and managing agents consult leaseholders before giving the green light to any major works. This process is meant to give leaseholders a chance to review the proposals, ask questions and challenge costs if they feel they’re unreasonable. This consultation typically happens if the work is expected to cost more than £250 per household. 

In some cases, buildings with a right to manage company have a say in how service charges are handled. The right to manage lets leaseholders collectively take control of the management of their building, usually by forming a legal company. It means the people living in the building can directly influence decisions about maintenance, repairs and even which contractors are taken on to do the work. If you’re part of a right to manage company you might have more control over how service charges are allocated, which can reduce costs in some cases – thanks to the decisions being made by the people who’ll have to pay for them. 

Landlords and managing agents have to keep detailed records of how service charge money is spent, according to the law. Leaseholders have the right to request these records as well as inspect receipts and accounts to make sure they’re being charged fairly. If you suspect you might be being overcharged or that the service charge funds aren’t being used appropriately, you are entitled to ask for transparency. Leaseholders might even be able to get some money back if it’s proven that charges were inflated or unjustified.

For those living in shared ownership properties, service charges can work slightly differently. Shared ownership allows people to buy a percentage of a property while paying rent on the remaining portion, but the charges are usually calculated as if you own 100% of the property. This can come as a surprise to many shared owners who assume their service charge would only apply to their ownership share. It’s crucial for shared owners to understand that they are liable for the full service charge, even though they don’t fully own the property.

Service charges can sometimes become contentious in new-build developments. Buyers of new-build homes might expect charges to be lower, given that the building is new and should, in theory, need less maintenance. In reality, new builds often come with high charges due to the additional amenities they often have – that can mean gyms, gardens and concierge services. As a result, it’s not uncommon for charges in new-build developments to be higher than anticipated, which can catch buyers off guard.

It’s important to factor in service charges when budgeting for your next home, whether you’re renting or buying. Make sure to ask the landlord, estate agent or seller for an estimate of the service charge, and check for a history of large increases or extra charges.

Who pays service charge when renting in the UK?

If you’re renting a flat in the UK, the responsibility for paying the service charge can sometimes be a bit murky. The landlord is ultimately responsible for paying the service charge to the managing agent, in most cases, but they usually pass this cost on to tenants by folding it into the rent. So, while you might not be paying the service charge directly, it’s likely that your rent has been calculated to include the cost of the service charge. 

It’s worth checking your tenancy agreement carefully, because some landlords may explicitly state that the tenant is responsible for paying the service charge directly. If this is the case, it should be clearly outlined in your rental agreement and you should know exactly how much you’ll be expected to pay.

Landlords might ask tenants to contribute to the service charge separately from the rent, though it’s rare. In this case you should make sure that the tenancy agreement reflects the arrangement accurately.

Some tenants find there’s a lack of transparency surrounding service charges, according to activists, and that they’re paying for work which doesn’t benefit them. Research by the Social Housing Action Campaign found that more than 40% of people surveyed said their landlords charged them for something which applied to a building or area they weren’t living in – if they could get information on what they were paying for at all.

“In no other industry are people required to pay invoices for goods or services without having a copy of the invoice in their possession,” the campaign group said in a report which stated that housing associations collect roughly £1.5bn in charges each year. 

“Sometimes the housing association benefits, sometimes it is a sub-contractor.

“Tenants do not have the same legal rights to information as leaseholders and shared owners. But even residents who do have legal rights to statements and invoice packs do not get them within the legal timescale, or sometimes at all. 

“The information on what has been charged and how it’s been calculated is owned by the landlord and we have to persuade them to let us have it even though we pay.”

Is there help available with these charges from the DWP?

Service charges can prove a headache for people on low incomes or claiming benefits. The Department for Work and Pensions (DWP) doesn’t provide targeted help with service charges in the same way it does for rent, for example, but some elements of the service charge might be covered by housing benefit payments or the housing element of universal credit. Contact a housing adviser or the DWP directly if you’re not sure how much your payments cover.

Older people on low incomes might be eligible for extra help paying service charges through pension credit. 

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