A service charge is the money leaseholders pay towards running the building: insurance, maintenance, cleaning, and contributions to a reserve fund for big future costs. Whether you self-manage or use an agent, the legal framework is the same, and it is firmly on the side of transparency. Leaseholders have strong rights to see where the money goes, and those running the building have clear duties.
The golden rule: charges must be reasonable
Under Section 19 of the Landlord and Tenant Act 1985, service charges are only payable to the extent that they are reasonably incurred, and any works or services must be of a reasonable standard. You cannot pad the charge, and you cannot recover costs that were not sensibly spent. This applies to a self-managed building just as it does to an agent, so the discipline matters even when you are charging yourselves.
Money held on trust
Service charge money does not belong to whoever runs the building. Under Section 42 of the Landlord and Tenant Act 1987, it is held on trust for the leaseholders who paid it, and it must be kept in a designated account, separate from anyone's personal or business money. For a small self-managed block, that means one clearly named bank account for service charge funds and the reserve, never mixed with anything else.
The 18-month rule you cannot ignore
This is the deadline that catches buildings out. Under Section 20B of the Landlord and Tenant Act 1985, if you do not demand a service charge cost within 18 months of incurring it, you generally lose the right to recover it, unless you told leaseholders in writing within that 18 months that the cost had been incurred and would be charged later.
Section 20: consult before you spend big
Before committing to expensive works or a long contract, you usually have to consult leaseholders formally under Section 20 of the Landlord and Tenant Act 1985. There are two thresholds, and they are low, so small blocks hit them more often than people expect.
| Trigger | Threshold (per leaseholder) | Example |
|---|---|---|
| Qualifying works | More than £250 | Repairs or refurbishment where any one leaseholder's share exceeds £250 |
| Qualifying long-term agreement | More than £100 per year | A contract lasting over 12 months, such as a maintenance or cleaning deal |
What leaseholders are entitled to see
Transparency is not a nicety, it is a right. Leaseholders can, on written request, obtain a summary of the costs that make up the service charge, and then inspect the invoices and receipts behind it. They are also entitled to a summary of their rights and obligations with service charge demands. A well-run building gives this freely, because openness is what stops disputes before they start.
Year-end accounts: keeping it simple
At the end of the service charge year, the building should reconcile what was budgeted against what was actually spent, and account to leaseholders for the difference. For most small blocks this is a service charge accounts statement prepared from clean records. Many leases also require it to be certified by an accountant, so check yours.
Keep records as you go
Log every demand, payment, invoice and reserve contribution through the year. This is the single biggest time-saver and the foundation of accurate accounts.
Reconcile budget to actual
Compare what you planned to spend with what you did, and explain any significant differences.
Account to leaseholders
Share the year-end statement so everyone can see the building's financial position, including the reserve fund.
Certify if the lease requires it
Have an accountant review and certify the accounts where your lease calls for it. A vetted partner can do this for a fixed fee.
If your building currently pays an agent to do all this and you suspect you could do it more cheaply and more openly yourselves, the switch check will estimate what you would save.
Frequently asked questions
Do small self-managed blocks have to follow service charge law?+
Yes. The Landlord and Tenant Act 1985 and 1987 apply regardless of who manages the building. A self-managed block must still keep charges reasonable, hold the money on trust in a separate account, observe the 18-month rule, and consult under Section 20 where the thresholds are met.
What is the 18-month rule for service charges?+
Under Section 20B of the Landlord and Tenant Act 1985, a cost generally cannot be recovered through the service charge if it is demanded more than 18 months after it was incurred, unless leaseholders were notified in writing within that 18-month period that the cost had been incurred and would be charged.
When do we have to run a Section 20 consultation?+
When qualifying works would cost any single leaseholder more than £250, or when entering a long-term agreement of more than 12 months that would cost any leaseholder more than £100 a year. Failing to consult caps what you can recover at those figures unless a tribunal grants dispensation.
Sources and further reading
- Landlord and Tenant Act 1985, Section 19 and Section 20
- Landlord and Tenant Act 1985, Section 20B (18-month rule)
- Landlord and Tenant Act 1987, Section 42 (trust money)
- LEASE: Section 20 consultation guidance
This guide is general information, not legal advice. Good Flats is not a law firm or a regulated managing agent. Information is verified against UK legislation as of June 2026; some announced reforms are not yet fully in force. Always check your own lease and take professional advice on anything significant.