Leasehold property: service charge problems

With a leasehold property, your landlord (the freeholder) takes care of the common areas of your building. Make sure you know what you will be liable to pay for in advance and what to do if you don't agree with the leasehold property service charges with our top tips.

More than half (54%) of leaseholders say they have encountered problems with their leasehold property including leasehold property service charges and maintenance fees according to the 2019 annual Homeowner Survey.  The most common complaints from leaseholders relate to high cost of works and management fees (26%) and a lack of control over which major works are done (23%).

Leasehold reform promises improvements for leaseholders, such as requiring transparency over leaseholders’ service charges. Find out more in our guide on Leasehold reform.

While these reforms are rolled out, here are some top tips on what you can do now to deal with your freeholder or management company:

1. Right to know leasehold property service charges

Your landlord/freeholder is obliged to give you a statement of your rights every time they demand a service charge. Don’t just file it away, get to know what to expect.

Watch out though, not all contracts are the same: although some aspects of the law are universal, some  only apply to the private sector and some are just for the public sector. And not all public sector leases are the same. For example, if you’re a secure tenant in a local authority home you can’t challenge your service charges but if you’re a housing association tenant you can.

2. Get an idea of how much things are likely to cost

ARMA (the Association of Residential Managing Agents) estimates the average service charge bill in London at around £1,800 to £2,000 a year. This will of course vary around the country but anything over £5,000 is expensive and you should definitely be asking questions.

Ask for a list of any planned major works (i.e. anything costing more than £250 per leaseholder) and ask your landlord to set out estimated service charges for the next five years as well as details of service charge costs for the last three years.

If the freehold is owned by a public sector landlord they are legally obliged to estimate major works for the coming six years.

3. Scrutinise every bill your freeholder sends you

Section 20 of the 1985 Landlord and Tenant Act says your freeholder must provide you with at least two estimates and give you 30 days notice before major works.

But demand more and make sure value for money is a priority: shop around for the cheapest quote and ask for an explanation as to why certain companies have been contracted.

4. If you do have a complaint

If you are unhappy about your service charge, you should try to resolve the issue with your landlord first.  

Set out your concerns to them in writing. Keep a record of all your communications as they may be useful later if you need to apply to a court or tribunal.  

If your freeholder is hard to track down check out our guide on Absent Freeholders.

Speak to other leaseholders – if they are having the same problem you will have a stronger case if you complain together.

Consult your building’s tenants’ association if you have one – landlords have to consult them about all works and long-term agreements. If you don’t have one set one up.

You can also use your legal rights to ask for information from the landlord, such as a summary of the service charge accounts, as well as receipts and other relevant documents. 

5. If consulting fellow leaseholders and the freeholder doesn’t work – what next?

If you cannot reach an agreement, consider a mediation provider – they will help settle the dispute with your landlord for a fee, and it should be cheaper than going to court.

If all of the above fails and you have evidence to challenge the charges, you can make an application to the First-tier Tribunal (Property Chamber), or the Leasehold Valuation Tribunal if the property is in Wales. 

The First-tier Tribunal has 5 regional offices throughout England that deal with settling disputes in relation to leasehold property and the private rented sector. They deal with various matters including service charge disputes, lease variations and the determination of premiums for freehold purchase and lease extensions. This tribunal covers matters previously heard by the Leasehold Valuation Tribunal in England.

We recommend that you seek advice of a solicitor or a surveyor if you decide to challenge the charges. 

You can find out more from the Leasehold Advisory Service here

6. Consider setting up a “Right to Manage” company

If your building has a private sector freeholder, and you can get more than 50% of your fellow leaseholders on board, you have the right to manage your own property by setting up a ‘right to manage’ (RTM) company. You can establish an RTM if:

• The building contains two or more flats
• Two-thirds (or more) of the flats have long leases (typically more than 21 years)
• At least 75% of the block is residential

See our Right to Manage guide for more advice.

You can also ask your landlords to sell you the freehold at any time and you might even be eligible to demand that they sell it to you.

Share of freehold – right to dispute service charges

If you own a share of the freehold you still have the right to dispute the service charges of your building.

You can also issue Tribunal proceedings against the management company as an individual leaseholder.

However, you should weigh up the costs of doing so. When you own a share of the freehold, you may also be responsible for a share of the costs incurred by the management company in defending any dispute. You may also be responsible for contributing to any expenditures which the Tribunal decides cannot be recovered under the service charge. This would depend on what is set out in the company’s constitution. So, this needs to be taken into account in deciding whether or not it is financially worthwhile taking action.

Note that all freeholders are obliged to comply with section 20 consultation requirements for major works (a notice of intention to carry out work must be served to all leaseholders), regardless of whether the freeholder company is made up of the leaseholders.