What are leasehold management fees and service charges?
Key takeaways
Service charges and management fees are costs that you may have to pay on top of your mortgage
Service charges and management fees are common in leasehold properties
They usually cover costs like the maintenance of the building, buildings insurance, and administrative fees
You can challenge them if you think they are unfair or unreasonable
Leaseholders have rights to information about service charges and, in certain circumstances, must be consulted before major works are carried out
What are service charges?
Service charges are fees that you may have to pay on top of your mortgage for certain properties. Some properties, such as flats, tend to be sold on a leasehold rather than a freehold basis.
This means that you own the right to occupy the property for the duration of the lease, while the freehold owner (freeholder or landlord) owns both the building and the land it stands on.
If your property is a leasehold, as well as your monthly mortgage and ground rent (a fee for the land the property is built on), you will also need to pay service charges.
The money, which is typically taken in advance, either annually, six-monthly or sometimes monthly covers costs including buildings insurance and any repairs required, such as fixing a roof or repainting communal areas.
Service charges might also include a contribution towards a sinking fund to cover the cost of more extensive work in future.
This can help spread the cost, rather than to find large sums when major work is required.
How service charges are calculated
The method of calculation is set out in your lease. Common approaches include:
Fixed percentage split: for example each flat pays 1/20th of total costs
Unit/apportionment formula: larger flats pay more than smaller ones
Actual costs basis: you pay a share of the actual expenditure each year
Regardless of method, charges must be “reasonable” under the Landlord and Tenant Act 1985. That means:
The service must be necessary
The cost must be fair
Work must be completed to a reasonable standard
When it is fully implemented, the new Leasehold and Freehold Reform Act 2024 in England and Wales will require landlords and managing agents to show clear service charge accounts and supporting paperwork each year.
It will give leaseholders more rights to inspect these documents and to challenge unreasonable charges.
How charges are reviewed
Most landlords or managing agents review service charges annually by:
Budgeting for the upcoming year
Issuing a demand (usually quarterly or annually)
Reconciling actual expenditure at the year-end
Leaseholders should receive:
A summary of costs
Access to invoices or receipts on request
Advance notice of major works
What are leasehold management fees?
A leasehold management fee is part of the service charge and is designed to cover the costs of managing the building. It may be paid to the freeholder, landlord or a managing agent appointed on their behalf.
It typically covers administrative and management tasks, such as arranging maintenance, handling finances, and overseeing the day-to-day running of the property.
Fees will vary depending on the size of the property and how much work the manager or landlord plans to do on the property.
You can expect your fees to go towards paying for overheads such as office space, as well as their day-to-day work of collecting service fees, handling finances, arranging maintenance inspecting the property when any major structural work is required.
Landlords may pay a management company to carry out these tasks, in which case the fees will be used by the latter to cover costs.
In short, management fees cover the administration service charges and the work involved in managing and maintaining the building.
Are leasehold management fees the same as service charges
No, leasehold management fees are not the same as service charges, the management fee is usually a specific part of the overall service charge.
As such, the fee you pay will be split between the costs of maintaining the building (the service charge) and the cost of managing it (the management fee).
As a leaseholder, you have legal rights to obtain information about service charges from your landlord.
Depending on the circumstances, this can include requesting a summary of relevant costs and inspecting supporting invoices, receipts and other documents.
While landlords are not generally legally obliged to share a budget for the year with leaseholders simply because they request one, the lease or applicable guidance may require or encourage the provision of budget information.
This can provide an estimate of expected costs, which can then be revised later to reflect the actual amount spent.
What legal protections do leaseholders have?
Leaseholders have several legal protections designed to help them understand and challenge the costs they are asked to pay.
Your lease is particularly important because it sets out what the landlord is responsible for, what you are responsible for, which costs can be recovered through the service charge and how those costs should be apportioned between leaseholders.
In general, leaseholders have rights to:
Receive a service charge demand containing the required information
Request information about service charge expenditure where the relevant legal requirements apply
Inspect invoices, receipts and other supporting documents where they have a statutory right to do so
Be consulted about qualifying major works and certain long-term agreements
Challenge service charges they believe are unreasonable or otherwise not payable
Apply to the First-tier Tribunal (Property Chamber) in England in appropriate circumstances
It is a good idea to keep copies of service charge demands, annual accounts, correspondence, invoices and any notices about major works.
These documents can help you understand how a charge has been calculated and may be useful if you need to challenge it.
New transparency measures under the Leasehold and Freehold Reform Act 2024 are being implemented through further legislation.
These reforms are intended to give leaseholders clearer information about service charges and other costs and make it easier to scrutinise and challenge them.
Why do I have to pay a service charge?
A service charge must be paid so that the landlord or manager can maintain the building and ensure that it does not fall into disrepair.
Because leasehold blocks of flats tend to be owned by lots of different people, a service charge means that the cost of any upkeep is split between leaseholders in accordance with the terms of their leases.
At its most basic, such a charge means that communal areas will be kept in good condition and possibly cleaned if funds allow for it.
A fee to cover the future cost of major works also tends to be included, which goes into a sinking fund, meaning you shouldn’t have to pay extra if such repairs are needed.
Service charge money is subject to legal protections, including rules about how landlords must hold and account for service charge funds.
What services should be included in management fees?
Management fees cover a wide range of tasks carried out by the landlord. These include:
Collecting service charges
Maintaining shared bank accounts on behalf of residents
Inspecting the property
Looking after records of tenants and leaseholders
Speaking with tenants and resident associations
Providing accounts for service charges
Arranging for buildings insurance cover
Coordinating routine repairs, including getting quotes and engaging contractors
What should service charges cover?
Service charges shouldcover the following costs:
Maintaining all communal areas
Looking after any shared outdoor space
Paying for routine repairs
Contributing to a sinking fund to cover major repairs
Paying for buildings insurance (not including contents or damage cover in your own property)
Do I still need buildings insurance if I’m paying service charges?
You should refer to the terms of your lease to see if you need to purchase buildings insurance on top of any service charges you are paying. Buildings insurance protects properties from unexpected events, like a fire or flood. Often, the freeholder, landlord or management company will arrange buildings insurance, but this isn’t always the case. You should always check what is included in your lease.
It's also worth noting that even if buildings insurance is covered within your service charge, this usually won’t cover damage within your own property, or the contents of your property. You may wish to consider purchasing additional insurance to make sure you are sufficiently covered.
Challenging or reducing fees
Leaseholders have several rights to question or challenge service charges and management fees if they feel the costs are unreasonable, incorrectly calculated or not supported by proper documentation.
1. Right to information
Depending on the circumstances, you can request or inspect:
A breakdown or summary of costs
Copies of invoices and receipts
Information about the work carried out
Information about contractors and the costs of their work
Landlords must comply with applicable statutory information and inspection requirements. A managing agent may also hold the relevant information on the landlord's behalf.
If you believe information has been withheld incorrectly, you can seek advice from the Leasehold Advisory Service.
2. Consultation requirements (Section 20)
For major works costing more than £250 per leaseholder, or qualifying long-term agreements costing more than £100 per leaseholder per year, the landlord must normally carry out a Section 20 consultation under the Landlord and Tenant Act 1985.
The £250 threshold applies to the amount any one leaseholder would have to contribute towards qualifying works, rather than simply the total cost of the project.
If the landlord does not follow the consultation requirements, they may generally only be able to recover up to £250 per leaseholder for qualifying works, or £100 per year for a qualifying long-term agreement, unless a tribunal grants dispensation from the consultation requirements.
What is a Section 20 notice?
A Section 20 notice is part of a formal consultation process that landlords must follow before carrying out certain qualifying works or entering into certain long-term agreements.
The purpose of the consultation is to give leaseholders an opportunity to understand what is proposed and, depending on the stage of the consultation, make observations or nominate a contractor.
For major works, the consultation can involve more than one notice or stage. The exact process depends on the circumstances and the type of works or agreement involved.
If you receive a Section 20 notice, you should read it carefully and check:
What work is being proposed
Why the work is needed
How much it is expected to cost
How your share of the cost has been calculated
When the work is expected to take place
Whether you can make observations or nominate a contractor
Whether the work appears to be covered by the terms of your lease
Receiving a Section 20 notice does not necessarily mean that you have to pay the amount stated immediately. The consultation process and the process for recovering the cost through the service charge are separate. What and when you have to pay will depend on the lease and the circumstances.
What if the work isn't carried out inside my flat?
You may still have to contribute towards major works even if the contractor does not carry out any work inside your individual flat.
For example, a landlord might need to repair the roof of a block of flats. The work may take place entirely on the roof or in communal areas, rather than inside individual properties.
If the lease requires the cost of maintaining the roof to be shared between the leaseholders, you may still have to contribute even though no work takes place inside your flat.
The same could apply to work on communal stairways, lifts, external walls, windows or other parts of the building.
However, whether you have to contribute and how much you have to pay depends on the terms of your lease and the way service charges are apportioned.
The fact that work is not carried out inside your flat does not, by itself, mean that you are exempt from paying.
Equally, a landlord cannot necessarily charge every leaseholder for every item of work simply because it benefits the building.
If you think you have been charged for work that does not relate to your property or that your lease does not require you to contribute towards, check the relevant clauses in your lease and ask the landlord or managing agent to explain how the cost has been apportioned.
3. First-tier tribunal (property chamber)
In the first instance, you should raise any concerns with the landlord in writing. You can also seek advice from an organisation such as the Leasehold Advisory Service.
If this doesn’t resolve your concerns, you can apply to the First-tier Tribunal (FTT) to decide:
Whether service charges are reasonable
Whether major works are necessary
Whether management fees are fair
Whether a landlord is performing their role properly
The tribunal is relatively low-cost and designed to be accessible for consumers, though a lawyer may be helpful in complex cases.
4. Right to manage (RTM)
Leaseholders have the right, under the Commonhold and Leasehold Reform Act 2002, to legally take over management from the landlord and appoint their own managing agent, often reducing fees and improving transparency.
What happens if you don’t pay?
Falling behind on service charges can lead to serious consequences:
Interest or late payment fees may be applied
Debt recovery action and solicitor fees
A county court judgment (CCJ) if charges remain unpaid after formal demands
In extreme cases, forfeiture proceedings - the landlord can start a process that could ultimately lead to loss of the lease (though this is rare and heavily regulated)
Mortgage lenders often insist arrears are cleared before allowing a sale or remortgage.
If you believe a service charge is incorrect or unreasonable, you should seek advice before simply refusing to pay it. A landlord may be able to take court action to recover a charge that is properly due.
Compare mortgages with MoneySuperMarket
Looking for first-time buyer mortgage to take your first step on the property ladder? Or perhaps you're looking to remortgage?
Either way, it’s easy to find and compare mortgages from a range of leading lenders with MoneySuperMarket.
Whether you’re looking for a fixed-rate, a tracker, or a discount mortgage, our mortgage comparison tool can help you find a great deal for you.
We’ll just ask you a few questions about the property you’re looking to buy or remortgage and how much you’ll need to borrow.
We’ll then show you results including the initial interest rate and your monthly repayments and any product fees you’ll be asked to pay.
Other useful guides:
What home insurance do I need for a flat?
What’s the difference between freehold and leasehold properties?
Author
Mel Hunter
Money & Personal Finance Expert
Mel Hunter has worked as a journalist on national newspapers and magazines for more than 20 years. Writing for a wide range of publications, including Good Housekeeping, Woman & Home, The Telegraph...
Reviewer
Collette Shackleton
Content Writer
Collette is an experienced Content Writer at MoneySuperMarket, helping people make sense of money and insurance topics without the jargon. She shares her experience as a first-time Mum and top...
