In a leasehold flat, shared elements such as the lobby, lifts, roof, and gardens are maintained collectively. The freeholder or their appointed managing agent pools all associated costs — cleaning, repairs, insurance, and management fees — and apportions them among leaseholders, typically in line with the floor area or a fixed fraction set out in the lease.
The charge is not fixed year to year. The managing agent issues an estimated service charge demand at the start of each period and reconciles it against actual expenditure at year end, issuing either a credit or an additional demand. Larger works — for example replacing a roof or a lift — may trigger a separate contribution to a reserve fund, sometimes called a sinking fund. Before exchanging contracts, a buyer's solicitor will review at least three years of service charge accounts to spot patterns of escalating costs or underfunded reserves.
Under Section 20 of the Landlord and Tenant Act, landlords must consult leaseholders before committing to qualifying works above a certain threshold. Leaseholders who believe a charge is unreasonable may apply to the First-tier Tribunal (Property Chamber) for a determination. Always take independent legal advice on your specific lease terms.
Service charges directly reduce net rental yield and can vary significantly from one building to the next, so overseas investors should scrutinise historic accounts and reserve fund levels with a qualified solicitor before committing to any purchase.