Service charge: what tenants pay for and how to check it

A service charge is the mechanism by which a landlord recovers the cost of running a building from the people occupying it. It is usually paid on account against an estimate and reconciled afterwards, and the reconciliation is where most of the money questions live — which is unfortunate, because it is also the document tenants are least likely to read.

What a service charge can usually recover

• Maintenance and repair of common parts: entrances, lifts, corridors, roofs where the lease says so.
• Building insurance, often recharged separately but on the same principle.
• Security, cleaning, grounds and waste collection.
• Management fees, which are recoverable but should be proportionate and are frequently where disputes start.
• Contributions to a sinking or reserve fund, if and only if the lease provides for one.
• Not improvements dressed as repairs, and not costs attributable to parts of the building you have no access to.

The reconciliation nobody reads

Estimates are produced before the year and actual costs after it, and the difference is billed or credited. Reading that statement is the only moment you can see what was actually spent, and the questions worth asking are consistent: what rose sharply against last year, what one-off items appeared, whether anything looks like capital work, and whether your apportionment percentage is what the lease states. Apportionment errors persist for years precisely because nobody recalculates them, and they compound.

Check the year-end statement against the lease rather than against last year's statement. Comparing one statement to another perpetuates an error, while comparing it to the lease is what finds a charge that was never recoverable in the first place.

Challenges worth making

1. Ask for the invoices behind any item that moved materially — a reasonable request that is often simply not made.
2. Question management fees expressed as a percentage of total spend, since that structure rewards spending more.
3. Check whether works were consulted on where the lease or statute requires consultation above a threshold.
4. Raise apportionment in writing, because it affects every future year rather than only the one in dispute.
5. Keep your correspondence, as a challenge made and not pursued is read as acceptance.
6. Observe time limits, which exist in many leases and are strictly applied.

Ettex Records is a sensible home for the lease alongside each year's estimate and reconciliation, which is what makes a multi-year comparison possible at all. The dates that decide what you can still challenge sit in the same record as the notice deadlines, and both are missed the same way.