Service charge

Why it matters

The question landlords most often ask is who pays the service charge, the tenant or the landlord. In the overwhelming majority of private rentals the answer is the landlord. If you own a leasehold flat and let it out, the service charge is your obligation to the freeholder or management company under your lease, and your tenant pays you rent — not the service charge. A tenant only pays a service charge where their own tenancy agreement clearly creates that obligation, which is unusual in residential lettings and is tightly controlled by law.

Legal requirements

• Under sections 18 to 30 of the Landlord and Tenant Act 1985, a residential service charge may only recover costs that were reasonably incurred, and any works or services must be of a reasonable standard.
• Section 21B requires a summary of tenants rights and obligations to accompany every service charge demand — a demand without it can be withheld.
• Section 20B is the 18-month rule: costs cannot normally be recovered if demanded more than 18 months after they were incurred, unless the payer was notified in writing within that period that the cost had been incurred and would be charged.
• Section 20 requires formal consultation before qualifying works costing any one contributor more than 250 pounds, or a long-term agreement costing any one contributor more than 100 pounds a year. Without consultation or dispensation, recovery is capped at those figures.
• Variable service charges must be held on trust under section 42 of the Landlord and Tenant Act 1987.
• Either party can apply to the First-tier Tribunal (Property Chamber) for a determination of whether a service charge is payable and reasonable.

Common mistakes

• Assuming the tenant is liable for the service charge because the flat is leasehold — the leaseholder is liable, and if you let the flat that is you.
• Adding a separate service charge to an assured tenancy with no clear contractual basis, which is unenforceable and may breach the Tenant Fees Act 2019.
• Paying a demand that arrives more than 18 months after the cost was incurred without checking section 20B.
• Buying a leasehold flat without asking for the service charge history and any live section 20 consultations.
• Withholding payment entirely instead of paying under protest and challenging through the tribunal.

Practical guidance

• Keep every service charge demand, budget and year-end account — they evidence your allowable expenses for tax.
• Service charges on a let property are normally deductible against rental profit as a revenue expense; capital improvement contributions are not.
• Price the service charge into the rent rather than trying to recharge it separately.
• Diarise the annual budget date and the year-end account date so you can query figures inside the statutory windows.

Who pays the service charge in a rented property?

If you let a leasehold flat, you pay the service charge to the freeholder or managing agent, and you recover it economically through the rent you set — not as a separate line item. Attempting to pass an unpredictable variable service charge straight through to an assured tenant is problematic: it is effectively a variable rent, it is difficult to enforce, and under the Renters Rights Act 2025 rent for an assured periodic tenancy can only be increased by the statutory notice route once a year. The clean approach is to price the service charge into the rent when you set it, and review the rent annually if the charge rises.

When can a tenant be charged separately?

A separate service charge in a residential tenancy is only enforceable where the tenancy agreement expressly and clearly imposes it, the services are identified, and the mechanism for calculating the tenant share is set out. Even then the statutory reasonableness tests in the 1985 Act apply, the summary of rights must accompany demands, and the Tenant Fees Act 2019 in England blocks any payment that is not a permitted payment — so a charge dressed up as a service charge but functioning as an administration fee is prohibited and recoverable by the tenant. In practice this only makes sense in HMOs where bills-included packages are structured carefully, or in purpose-built blocks with tightly defined services.

What a service charge can and cannot cover

Typical recoverable costs include buildings insurance, communal cleaning and lighting, lift maintenance, fire alarm and emergency lighting servicing, grounds maintenance, managing agent fees, and repairs to the structure and common parts. Costs that regularly cause disputes include improvement works dressed up as repairs, management fees that are disproportionate to the service delivered, works carried out without the required section 20 consultation, and reserve fund contributions where the lease does not authorise a reserve fund at all. Read the lease before paying: the lease defines what is recoverable, and the statute then filters it for reasonableness.

Challenging a service charge

Ask the managing agent in writing for a summary of relevant costs under section 21 of the 1985 Act and for the right to inspect the supporting invoices under section 22. If the answers do not satisfy you, an application to the First-tier Tribunal (Property Chamber) in England, the Leasehold Valuation Tribunal route in Wales, or the First-tier Tribunal Housing and Property Chamber in Scotland can determine payability and reasonableness. Do not simply withhold payment: non-payment can trigger forfeiture proceedings against a leaseholder. Pay under protest, in writing, and challenge in parallel.

Budgeting for it as a landlord

Service charges on leasehold flats have risen sharply, driven by insurance premiums and building safety remediation. When you assess yield, treat the service charge and ground rent as fixed annual costs alongside the mortgage, and ask the seller for the last three years of demands plus any section 20 notices already issued before you buy. A pending major works consultation is a material cost that will land on you, not the tenant.