Who pays the service charge: landlord or tenant?

Service charges are common for properties with shared spaces, such as hallways, communal gardens, and car parks. But who pays the service charge on a rented flat? And what does it cover? 

In this guide, our private rented experts explore everything you need to know about service charges. 

Have other questions? Check out our other resources on managing your property here. 

What is a service charge?

A service charge is a fee that covers the cost of managing and maintaining a property, typically including the upkeep of communal areas, building insurance, and any major works required to keep the building structurally sound, in good repair, and compliant. 

What can a service charge cover?

Generally speaking, a service charge can cover anything related to the maintenance and management of a property, and what is covered differs depending on your lease agreement. Typically, service charges can include: 

• Maintenance, repairs and cleaning of communal areas. 

• Buildings insurance. 

• Gardening and upkeep of communal outdoor areas. 

• Communal utilities, such as lighting in hallways and car parks. 

• Upkeep of any security systems, such as CCTV, intercoms and gates. 

• Reserve or ‘sinking’ funds. 

• Managing agent’s fees. 

Under the Landlord and Tenant Act, leaseholders have statutory rights to be provided with information about service charges if requested, including cost summaries, supporting invoices and receipts. 

Who pays the service charge, a landlord or tenant?

Who pays the service charge on a rented flat is a common question asked by landlords and tenants alike.  
 
As the leaseholder, you are legally responsible for paying the service charge directly to the freeholder or management company. You may then choose to absorb this cost yourself or seek to recover it through your rent.  

Is service charge included in rent?

Usually, yes. In England and Wales, private landlords are banned from charging a fee for most services, or requiring they enter into contracts with third parties.  

As a result, rather than trying to require the tenant pay the service charge themselves, the costs of paying it will normally be factored into the rent instead. 

How much is service charge in the UK?

Service charges vary from building to building, and many factors influence the amount on the bill. These include the property's size, location, and which communal spaces need to be maintained. For example, a building with a lift or a car park may require more money to maintain than one without. Properties with luxury amenities such as a gym or concierge service will likely have higher service charges to reflect the cost of management. 

The service charge must always be reasonably incurred, and the works and services provided must be of a reasonable standard.  

Can I challenge service charge?

Yes, you can challenge a service charge if you think the costs are unreasonable, or the work or management is unsatisfactory.  

How do I find out if the charge is unreasonable?

As a leaseholder, you are entitled to demand a summary of the costs related to the service charge for the last accounting year or the last 12 months if accounts aren’t kept by the year. This request must be made in writing.  

The freeholder will usually need to respond to a request within one month of the request. If the service charge applies to five or more homes, the summary must be signed by an accountant. 

Once you have received this summary, you can also request that your freeholder allow you to inspect their accounts, receipts, and other documents, and you can apply to a tribunal if you are still not happy. 

What are maintenance fees?

You may often hear service charge referred to as a ‘maintenance fee’, and the two terms are often used interchangeably. 

What is ground rent?

Ground rent is a fee that leaseholders may be required to pay to the freeholder who owns the land. It is separate to the service charge.  

The amount of the ground rent and when it is payable will be set out in the lease, but you do not have to pay the ground rent until after you have received a demand for payment from the freeholder.  The ground rent may be increased if your lease allows for it. 

Did the government ban ground rents?

In some cases, it is no longer possible to charge a ground rent. If the lease was granted on or after 30 June 2022, and it is for a term of more than 21 years, ground rent may not be charged. The freeholder may only ask for a peppercorn instead.  

What is the difference between ground rent and service charge?

What is a sinking fund?

A sinking fund, or reserve fund, is a separate savings account used to pay for large or high-cost works, such as laying new carpets in communal areas or replacing lifts. Collecting regular contributions to top up these funds means that when these works occur, leaseholders don’t receive a large or unexpected bill. 

You may want to check that there are sufficient funds in your building’s sinking fund to cover planned maintenance, so you don’t run into problems down the line. If you’re concerned that the fund is not adequate, you should raise these concerns with your managing agent or freeholder. 

What if there is no sinking fund?

Not all leases allow contributions to a sinking fund. If your lease does not allow a reserve fund, payment for major works must be requested outside of the standard service charge. This can mean large, unexpected bills for leaseholders. 

Section 20 consultation: what landlords need to know

Section 20 of the Landlord and Tenant Act 1985 protects leaseholders from unexpected or excessive costs. It requires a formal consultation if major works are likely to cost any leaseholder more than £250, or if the property enters a long-term service contract costing any leaseholder more than £100 a year. 

As a landlord, should I charge my tenant the service charge?

As the leaseholder, you are usually responsible for paying any service charge demanded under the lease, though you may wish to pass a portion of these costs on to your tenants as part of the rent.  

If you need to increase rent during an Assured Periodic Tenancy (APT), you must first serve a Section 13 notice, giving at least two months’ notice. 

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Service charge FAQs

When renting a flat, who pays the service charge?

Typically, the service charge is paid by you as a landlord, though you can recover costs by including it in the rent. 

What is a reasonable service charge on a flat?

This depends on a number of factors, including the building's size, age, location, and the on-site amenities that need to be maintained and managed. 

What is a service charge on a flat?

A service charge is a fee that covers the cost of maintaining, managing, and insuring the communal areas of a leasehold building.

Is a service charge tax deductible?

Service charges related to the day-to-day running of a rental property are often tax deductible. However, major works and contributions to reserve or sinking funds may not be. If you're unsure, seek professional tax advice.  

Can a landlord increase service charge?

As the service charge covers ‘reasonably incurred’ costs, the service charge can increase where the costs increase.