A guide for leaseholders
A service charge account is a financial statement that records all service charge income and expenditure for a property. But what is a service charge account used for?
Understanding your rights and obligations when it comes to service charge accounts is crucial, as they directly impact how much you pay for maintenance and shared services. In this guide, we explain:
- How service charge accounts work
- What’s included in a service charge statement
- Who pays service charge and what it covers
- Whether service charge accounts need to be audited
How Do Service Charge Accounts Work?
A service charge account provides a financial breakdown of the costs associated with maintaining communal areas in blocks of flats, commercial properties, and leasehold developments. These accounts are essential for ensuring fair and transparent property management.
Service charge accounts ensure that costs are fairly distributed among leaseholders, communal areas are properly maintained, and service charge funds are managed responsibly. They also ensure compliance with accounting requirements under the Landlord and Tenant Act.
Each year, flat owners and leaseholders receive a service charge statement, outlining actual service charge expenditure versus estimated costs. This helps to prevent unexpected charges and disputes.
Please contact us if you are a leaseholder and are unsure whether your service charges are fair, Blue Crystal Property Management has extensive experience in this area and can review them for you.
Who Pays the Service Charge?
Service charges are paid by leaseholders who own a property within a block of flats, a leasehold building, or a managed estate. The payment is typically required under the terms of the lease and contributes towards the upkeep of communal areas and shared services.
The amount each leaseholder pays is usually determined by their proportionate share, which is specified in the lease agreement. This means that larger flats or those with additional benefits, such as private terraces, may pay a higher percentage of the total costs.
Failure to pay service charges can result in legal action, and in some cases, the landlord or property management company may take steps to recover unpaid fees, which could ultimately impact leaseholder rights.
What Does the Service Charge Cover?
Service charge contributions go towards the maintenance and operation of the property’s communal areas and shared facilities. What the service charge covers will depend on the terms of the lease and the type of property. Find out more in our blog What does Leaseholder Service Charge cover?.
Leaseholders can request a breakdown of service charge expenditure to ensure they are only paying for relevant costs. Typical expenses covered by the service charge include:
- General maintenance and repairs – Upkeep of communal areas, lifts, and structural elements
- Cleaning and landscaping – Maintenance of shared hallways, gardens, and pathways
- Utilities and energy costs – Lighting, heating, and water supply for common areas
- Building insurance – Covering structural damage and liability
- Management fees – Costs associated with property management and administration
- Safety in buildings – Fire safety checks, alarm systems, and compliance with regulations
- Reserve fund contributions – A contingency for unexpected costs or major future repairs
If you have questions about your service charge statement, contact us for expert advice today from our experienced team.
What does a Service Charge Account typically contain?
These reports provide transparency and accountability, helping leaseholders understand what they are paying for and why. A service charge account generally contains:
- A breakdown of charges levied on tenants or leaseholders
- An income and expenditure account detailing relevant costs
- A balance sheet summarizing financial standing
- A schedule of reserves to cover unexpected service charge expenditure
- A summary of rights explaining leaseholder obligations
Do Service Charge Accounts Need to Be Audited?
Not all service charge accounts require a full audit, but they must be reviewed in line with landlord and tenant legislation. The Leasehold Reform Act 2002 outlines when annual accounts must be certified by an accountant.
An audit is required if there are more than four flats in the building, if the lease specifies an audit is necessary, or if leaseholders request an independent review.
For large developments or blocks of flats, having accounts audited by chartered surveyors provides added transparency and reassurance. If you believe your service charge money is not being managed correctly, you have the right to challenge it.
How to Request a Service Charge Account Summary
Under UK law, leaseholders can request a service charge account summary at any time. The landlord or property manager must comply with strict deadlines. They must provide a response within one month of your request or within six months of the accounting period’s end. If there are more than four flats in the building, the summary must be certified by an accountant.
At Blue Crystal Residential Property Management, we provide a full range of services to help you manage service charges with accuracy and transparency.
Understanding Your Rights as a Leaseholder
In England and Wales, service charge accounts must comply with the Landlord and Tenant Acts, the Leasehold Reform Act 2002, and sector-specific property management regulations.
These laws govern tax implications, accounting requirements, and protections for tenant’s associations and leaseholders. Proper management of service charge funds is essential to avoid legal disputes.
Leaseholders have legal rights under the Landlord and Tenant Act and the Tenant Act to request annual accounts and a service charge statement, challenge unfair service charge demands, seek clarity on relevant costs and service charge contributions, and be consulted on major works affecting service charge funds.
How Can Blue Crystal Help?
At Blue Crystal Residential Property Management, we provide expert service charge management to ensure transparency, accuracy, and compliance. Our service charge accounts give a clear breakdown of all service charge income and expenditure, so you know exactly how your service charge money is allocated. We meticulously track all payments and costs, ensuring efficient financial management.
Our advisory services help leaseholders understand their rights and obligations under the lease, including guidance on the Leasehold Reform Act 2002. If disputes arise, our team offers mediation between leaseholders and landlords to avoid lengthy legal battles.
We manage Section 20 consultations for major works, ensuring all legal obligations are met and that leaseholders are informed throughout the process. From routine property maintenance to large-scale repairs, we oversee every aspect of property management, keeping your property well-maintained and compliant with regulations.
Book your 30-minute complimentary property consultation by phone: 020 8994 7327 or email: pm@bluecrystallondon.co.uk.
