Is Your Service Charge Too High? 10 Things Leaseholders Should Check

A large service charge bill doesn’t automatically mean something is wrong — but leaseholders should understand exactly what they are paying for.

Few things cause more frustration for leaseholders than receiving a service charge demand that is significantly higher than expected.

Perhaps your bill has increased by hundreds or even thousands of pounds.

Perhaps the managing agent has announced major works.

Perhaps the service charge seems to keep increasing every year without any obvious improvement to the building.

Or perhaps you’ve simply reached the point where you are asking:

“Where is all this money actually going?”

The answer isn’t always straightforward.

Service charges can cover a wide range of costs, including repairs, maintenance, cleaning, insurance, management, communal utilities, compliance and major works.

But that doesn’t mean leaseholders should simply accept every charge without asking questions.

At Easy Leasehold, we help leaseholders understand service charge problems, investigate management issues and work out what can be done when the figures don’t appear to make sense.

First: a high service charge isn’t automatically an unreasonable one

This is an important distinction.

A service charge can increase for perfectly legitimate reasons.

For example:

• Building insurance may have increased.

• Contractors may charge more.

• A lift may require major repairs.

• Fire safety works may be required.

• The roof may need replacing.

• Cleaning costs may have increased.

• Major maintenance may be due.

• Compliance requirements may have changed.

The fact that a bill is expensive doesn’t, by itself, prove that it is wrong.

The better question is:

Can the charge be properly explained and justified under the lease and applicable rules?

That is where leaseholders should start looking more closely.

1. Compare this year’s service charge with previous years

Start with the simplest thing.

Look backwards.

Compare your current service charge with previous years and identify where the biggest changes have occurred.

You don’t need to be an accountant to identify where the major changes are.

Once you’ve identified them, you can start asking better questions.

Why has this increased?

2. Look at the management fee

Managing agents charge for managing buildings.

That’s perfectly normal.

But leaseholders should understand what they are paying for.

Look at the management fee and consider:

• Has it increased?

• Is it a fixed fee?

• Is VAT being added?

• Are there additional administration charges?

• Are there separate inspection fees?

• Are there fees for arranging works?

• Are there contractor management fees?

• Are there commissions or other charges?

The headline management fee doesn’t always tell the whole story.

A relatively modest annual management fee can sit alongside numerous additional charges.

3. Look at “other” or miscellaneous expenditure

This is an area leaseholders should pay particular attention to.

If your accounts contain broad categories such as:

Other

Miscellaneous

Administration

Professional fees

General expenses

don’t be afraid to ask what they actually contain.

There may be perfectly legitimate reasons for the expenditure.

But you are entitled to understand what you’re being charged for.

The more significant the amount, the more important it becomes to understand the detail behind it.

4. Check your building insurance costs

Insurance can be one of the largest service charge expenses, particularly in larger or higher-risk buildings.

Premiums can change significantly from year to year.

But if your insurance cost has increased substantially, ask:

• What was the previous premium?

• What is the current premium?

• What does the policy cover?

• Who arranged the insurance?

• Are there additional charges?

• Has the level of cover changed?

• Is the building adequately insured?

Insurance is an important part of managing a building, so simply assuming the cheapest policy is always the right answer isn’t appropriate.

But equally, significant insurance expenditure should be understandable.

5. Ask about major works

This is where service charge bills can become particularly painful.

A routine annual service charge might suddenly be followed by a demand for several thousand pounds for major works.

Roofing.

Windows.

External decoration.

Fire safety.

Lifts.

Structural repairs.

Communal areas.

The first question should be:

What exactly is being done?

Then ask:

• Why is it necessary?

• What condition is the building in?

• Has a professional inspection been carried out?

• How was the scope of work determined?

• How was the contractor selected?

• What is the estimated cost?

• Are there alternative options?

• How will the cost be divided between leaseholders?

• Has the appropriate consultation process been followed?

A major works bill should not simply be treated as a number on a service charge demand.

You need to understand the project behind the number.

6. Check whether the costs are actually recoverable under the lease

This is where things can become more complicated.

A lease is a contract.

The service charge provisions in your lease are therefore extremely important.

Just because a cost relates to the building doesn’t automatically answer the question of whether it can be charged to leaseholders in the particular way being proposed.

You need to consider what the lease actually says about:

• Repairs

• Maintenance

• Insurance

• Management

• Major works

• Improvements

• Professional fees

• Administration

• Apportionment

This is one of the reasons leaseholders should avoid relying solely on what a managing agent tells them.

The lease itself matters.

7. Understand how your share is calculated

Another important question is:

Why am I paying this amount?

Your lease may contain provisions explaining how service charges are divided between flats.

That could be a fixed percentage, a formula or another method depending on the development and the wording of the leases.

Don’t automatically assume that every flat should pay exactly the same amount.

Equally, don’t assume that an unusual apportionment is automatically correct.

If the calculation doesn’t make sense, look at the lease.

8. Ask for supporting information

If you don’t understand an expenditure item, ask for more information.

Depending on the circumstances and the particular statutory provisions involved, leaseholders can have rights to obtain information relating to service charges and the landlord’s management of the building.

This can include information such as accounts, supporting documentation and summaries of expenditure.

The exact rights and procedures can vary, so it is important to use the correct statutory route rather than simply demanding every document you can think of.

The principle, however, is straightforward:

If you are being asked to contribute significant sums towards managing your building, understanding the expenditure matters.

9. Look for recurring problems

Sometimes the issue isn’t one large charge.

It’s a pattern.

For example:

• Repeated emergency repairs

• The same contractor returning multiple times

• Poor-quality work requiring further repairs

• Excessive administration charges

• Repeated consultant fees

• Frequent major works

• Poor preventative maintenance

• Problems being allowed to become more expensive

A building that is poorly maintained can ultimately cost leaseholders more.

This is why service charge analysis shouldn’t just focus on individual invoices.

Sometimes you need to look at the management strategy of the entire building.

10. Ask whether the management arrangement is actually working

This is the question that gets overlooked most often.

Leaseholders frequently focus on the amount of their service charge.

But sometimes the bigger issue is:

Who is managing the building, and how are they managing it?

If leaseholders are consistently experiencing:

• High costs

• Poor communication

• Delayed repairs

• Poor contractor management

• Lack of transparency

• Increasing service charges

• Repeated disputes

then simply arguing over individual invoices may not solve the underlying problem.

You may need to look at the management structure itself.

What if you think your service charge is unreasonable?

Don’t immediately stop paying.

That can potentially create additional problems, depending on the circumstances and the terms of your lease.

Instead, establish the facts first.

Gather:

• Your lease

• Service charge demands

• Annual accounts

• Budgets

• Major works correspondence

• Consultation documents

• Contractor information

• Insurance information

• Relevant correspondence

Then work out exactly what you are challenging.

Is it:

The amount?

The work?

The quality?

The apportionment?

The procedure?

The management fee?

Whether the cost is recoverable under the lease?

Or the overall management of the building?

A precise challenge is usually much stronger than simply saying:

“My service charge is too high.”

Sometimes the service charge problem is really a management problem

This is something we see repeatedly.

Leaseholders become focused on a £5,000 invoice.

But when you step back, the bigger problem may be:

Why did this work cost £5,000?

Why was the work necessary?

Why wasn’t it identified earlier?

Who selected the contractor?

Was the building properly maintained?

Was there a better way of managing the problem?

This is where independent leasehold consultancy can be extremely valuable.

You don’t just want someone to tell you whether a number looks high.

You want someone to understand why the number exists in the first place.

What can Easy Leasehold do?

At Easy Leasehold, we help leaseholders and resident groups investigate leasehold management problems.

We can help you understand:

• Service charge concerns

• Major works

• Management fees

• Contractor expenditure

• Freeholder and managing agent responsibilities

• Management structures

• Lease provisions

• Communication problems

• Wider management strategy

And if the problem isn’t simply one invoice but a wider issue with how your building is managed, we can help you explore what options may be available.

That could include challenging aspects of the existing management arrangements, considering a change of managing agent or exploring greater leaseholder control through options such as Right to Manage.

You don’t have to accept a service charge bill without understanding it

Your service charge is ultimately coming out of your pocket.

You have every reason to understand what you’re paying for.

That doesn’t mean every expensive bill is wrong.

It means leaseholders should be informed, ask sensible questions and understand their rights and obligations.

And when something doesn’t make sense, you don’t necessarily have to tackle it alone.

Need help understanding your service charge?

If you’ve received a large service charge demand, you’re facing major works, you’re concerned about your managing agent or you simply don’t understand where your money is going, Easy Leasehold can help.

We provide independent, practical leasehold consultancy to help leaseholders understand problems, challenge issues and find solutions.

Don’t just ask whether your service charge is high.

Ask the more important question:

“Is my building being managed properly?”

Easy Leasehold — helping leaseholders understand their costs, challenge problems and take greater control.