How to set a service charge budget

Start with the lease

The lease decides what you can charge for, how costs are shared (percentages, floor area or “a fair proportion”), when payments are due, whether you can collect in advance and whether you can build a reserve fund. If the lease does not allow a cost, it cannot go in the budget.

Build the budget line by line

Typical headings for a block:

• Insurance: buildings, terrorism, directors’ and officers’, engineering inspection.
• Compliance: fire risk assessment, fire alarm and emergency lighting servicing, water hygiene, electrical tests, lift inspection, asbestos survey.
• Contracts: cleaning, gardening, lift maintenance, door entry.
• Utilities: communal electricity and water.
• Repairs: a realistic allowance based on the last three years.
• Professional fees: accountant, legal, surveyor, management platform.
• Reserve fund: contributions towards future major works, if the lease allows it.

Use actual figures from last year’s accounts and known contract prices, not round guesses. Section 19 of the 1985 Act says advance charges must be no more than is reasonable.

Share it out

Apply each flat’s percentage from its lease. Check the percentages add up to exactly 100%. If they do not, take advice: a tribunal can vary defective leases.

Demand it properly

Every service charge demand must include:

• the landlord’s (company’s) name and address in England and Wales (section 47 of the 1987 Act);
• an address for service of notices, if not already given (section 48);
• the prescribed summary of rights and obligations (section 21B of the 1985 Act).

Without these, leaseholders can lawfully withhold payment.

Watch the 18-month rule

You cannot recover a cost demanded more than 18 months after it was incurred, unless you warned leaseholders in writing within that time (section 20B).

Coming changes

The Leasehold and Freehold Reform Act 2024 will introduce a standard demand form that includes the budget. It is expected from 2027.