Service Charges, Budgeting and Accounts
What a service charge is
Section 18 of the Landlord and Tenant Act 1985 defines a service charge as an amount payable as part of or in addition to rent for services, repairs, maintenance, improvements, insurance or management costs, where the whole or part varies with the relevant costs. Section 19 imposes the twin test: costs must be reasonably incurred and the works or services of a reasonable standard; where costs are incurred over more than twelve months, the accounts must be provided within eighteen months of the end of the period. The lease fixes the proportion - a landlord cannot invent one.
Budgeting
Build the budget from the lease's schedule of services: contracted costs, historic actuals plus inflation, utilities, insurance, the management fee, the reserve fund contribution and a contingency of roughly 5–10%. Apportion it, divide into instalments and plan cash flow (quarterly in advance is common). A reserve or sinking fund spreads cyclical costs; it is not a slush fund and must be held and accounted for separately.
Demands and accounts
The reconciled accounts compare budget with actual; a surplus is credited, a deficit becomes a balancing charge. Hold client money in a designated client account. Every demand should carry the s.21B summary of rights and obligations and the landlord's name and address (s.47/48 LTA 1987); a demand omitting them is treated as not validly served - a favourite exam point. Tenants may request a summary of costs (s.21) and inspect supporting documents (s.22).
Traps
"Pay now, argue later" (s.72 CLRA 2002) means a tenant must pay while challenging in the FTT. Section 20C lets the tribunal block recovery of the landlord's costs through the service charge.
Rule of thumb
Budget = contracted + historic + inflation + reserve + 5–10% contingency. Example: £84,000 budget × 4.5% share = £3,780 a year, or £315 a month.