A service charge is a payment leaseholders make towards the cost of maintaining and running a building, including communal repairs, buildings insurance, cleaning and management. The amount varies with actual costs and is set out under the terms of the lease.
In one line: A service charge covers a leaseholder's share of maintaining and running the building and its shared areas.
How a service charge works
Service charges cover shared costs such as roof repairs, lift servicing, garden upkeep, buildings insurance and managing agent fees. The lease sets out how each leaseholder's share is calculated.
A flat owner might pay 1,800 GBP a year, billed in two instalments. A large one-off cost, such as a 6,000 GBP share of replacing a roof, can be charged separately and is often called a major works bill.
Leaseholders have a statutory right to challenge unreasonable service charges at the First-tier Tribunal (Property Chamber).
A service charge vs ground rent
A service charge funds real maintenance and management and varies with the building's costs. Ground rent is a fixed payment for the land that buys no service in return.
Service charges can rise sharply when major works are needed, unlike the fixed nature of ground rent. A managing agent usually collects the service charge and must account to leaseholders for how the money raised has actually been spent.
Primary source: GOV.UK: Leasehold service charges