Reading a service charge statement properly

Most leaseholders glance at the total, wince, and file it. That is understandable, and it is also how overcharging survives for years without being noticed.

A service charge statement is not a bill in the ordinary sense. It is an account of money already spent on your behalf, and you have a statutory right to interrogate it. Here is what each part should tell you and what to do when it does not.

Start with the budget, not the demand

You should receive two documents each year: an estimate at the start and actual accounts at the end. Compare them. Small variances are normal. A category that comes in at double its estimate is a question, and a plausible answer exists in most cases — an unexpected roof repair, an insurance renewal that jumped. What should worry you is a large variance nobody thought to mention until the accounts arrived.

Look at what sits inside "management fee"

The management fee should cover the routine work: collecting service charges, arranging maintenance, keeping the accounts, dealing with correspondence. What it should not quietly cover is a second layer of charges for things a reasonable person would assume were included — a fee for issuing a demand, a fee for answering a solicitor's enquiry, a fee for sending a letter.

Some of those charges are legitimate and properly disclosed. The test is whether you were told about them before they appeared.

Check the reserve fund is real

A reserve fund exists so that a new roof in fifteen years does not arrive as a bill you cannot pay. It should be held separately, its balance should be stated, and there should be some reasoning behind the amount collected — ideally a survey setting out what will need replacing and when.

A reserve fund with no stated balance, or one that has been dipped into for day-to-day costs, is worth asking about directly.

Three questions worth asking every year

First, which items came in more than twenty per cent over estimate, and why. Second, when insurance was last put out to market — buildings insurance is often the largest single line, and commission arrangements are not always visible. Third, what the reserve fund balance is and what it is being held against.

A managing agent who answers those three readily is probably running the building properly. One who treats them as an imposition is telling you something.

What you are entitled to

You can request a summary of costs, and you can inspect the invoices behind them. These are statutory rights, not favours, and the transparency measures working through Parliament are expected to strengthen them further — standardised demand forms and an annual report among them.

None of that helps if nobody asks. The most useful thing a leaseholder can do is read the accounts once a year and put the questions in writing.

This article is general information rather than legal advice. Anyone in dispute over a service charge should take proper advice on their own lease.