What is a service charge? Why do I pay it?

If you own or rent a flat in the UK, you may already know what a service charge is. However, if you’re a first-time buyer or renter of any property situated in a communal development, you’ll need to understand what a service charge covers and how it works. Our simple guide takes you through all the essentials so you won’t get caught out.

What is a service charge?

A service charge is a payment that either the property owner or tenant pays for services related to the upkeep of the communal areas attached to their home. Typically, service charges will apply if you live in a block of flats or a house within a development that offers its residents additional services, such as a concierge or fitness facilities.

Concierge services are one of the facilities that a service charge covers

What’s included in a service charge?

Service charge agreements vary widely depending on the property type and location. Generally, they include all cleaning, repair and maintenance works of communal areas like hallways, lobbies, lifts, etc. The upkeep of communal garden areas is another common feature of service charges.

Administrative services are also likely to be included, such as insuring the apartment building that contains the flats. If your development has access to communal leisure facilities – pool, gym, etc. – they will probably also feature in the service charge.

Services charges are usually paid to a property management company that organises all the required works. However, sometimes landlords will provide these kinds of services themselves.

Who pays the service charge: tenant or landlord?

The service charge is paid either by the tenant or the landlord. Sometimes landlords will decide to pay the service charge themselves and factor this into the rent to cover the cost. Other landlords prefer to split the costs between themselves and the tenant.

Whatever the arrangement, it should clearly state in your tenancy agreement who is responsible for paying the service charge. It is illegal for landlords to charge tenants for any services not explicitly featured in the tenancy agreement.

Service charges are often included in with rental payments

Do all flats have a service charge?

Not all flats will feature a service charge in their tenancy agreement. If you are a tenant, it is common for the service charge to be included in your rent.

If you are the owner of a leasehold property, you will have to contribute to the service charge along with all the other leaseholders. However, if you own a freehold property, you may still have a service charge obligation if you share any communal areas with other homes. These might include communal gardens or playgrounds, or unadopted roads.

(Check out our guide on the difference between freehold and leasehold properties for more information on this.)

How is a service charge calculated?

The service charge will be calculated by the property management company providing the services, starting with an estimated budget for the year. They can’t know exactly how much all the services will cost, so they base their estimate on the previous year’s costs. They will also factor in any expected changes in inflation and VAT.

Once they have an estimate for the year, the company (or the property owner) will share it with all leaseholders. The full amount is then split evenly between the leaseholders, who each contribute their share.

If the costs go over the estimate, they are added to the next bill. If the costs are less than estimated, any leftover funds are taken off the next bill.

Leisure facilities can increase the amount you pay for service charges

Is a service charge paid monthly?

Service charges are paid in advance, either quarterly, bi-annually or annually. Again, this should be made clear in any tenancy agreement or any contractual agreement with a property management company.

What is the average service charge in the UK?

Service charge averages vary significantly across the UK depending on where you live and what type of property you have. The HomeOwners’ Alliance puts the London service charge average at between £1,800 to £2,000 per year. Yearly averages for other major cities are closer to £1,500.

The level of services and access to extra facilities will also affect the size of your service charge. Living in an apartment in a small block with no communal garden will attract a more modest service charge. Meanwhile, a large development with concierge, leisure facilities, landscaped gardens and a rooftop terrace, for example, will command a higher charge.

How do you challenge a service charge?

If you are unhappy with the cost of your service charge, you can challenge the property owner or management company directly. They are legally obliged to provide you with two estimates and 30 days’ notice for all major works being carried out. They are also required to prove how much all charged services cost through legitimate invoices.

If you want to challenge your service charge, here are some tips to bear in mind:

  • Do your homework, and collect all relevant bills, invoices and statements to support your case.
  • Consult the other leaseholders. If you all complain together, you’ll make a stronger case.
  • Consult your building’s tenants’ association, if you have one.

Is there any way to avoid a service charge?

While you can’t legally avoid paying a legitimate service charge, you can consider taking over the management of the communal areas of the property if you are the leaseholder.

If your building contains two or more flats, and more than 50% of your fellow leaseholders agree, you can set up a ‘right to manage’ (RTM) company. This will allow you to handle all of the works yourselves, without paying a service charge.

Need more advice on rental costs or ground rent? We’ve got you covered with our simple guides.

HomeViews provides verified resident reviews of the UK’s housing developments. We’re working with developers, landlords and the Government to recognise high performers and help to improve standards in the built environment.

Rory Cramer
written by

Rory Cramer

Prior to co-founding HomeViews, Rory spent 13 years in the residential develo... Read all

Prior to co-founding HomeViews, Rory ... Read all