Summary
For leasehold homes, the service charge can be one of the biggest post purchase risks. It may cover building maintenance, cleaning, lighting, lifts, insurance, management fees, gardens, communal areas and reserve fund contributions. The exact scope depends on the lease.
A reserve fund, sometimes called a sinking fund, collects money in advance for larger works. This can reduce surprise bills, but the lease must allow it. For major works or long term agreements, landlords may need to consult leaseholders under Section 20. Buyers should read the lease, last accounts, current budget, planned works notices and managing agent correspondence before committing.
Definition
A service charge is a leaseholder’s contribution to the landlord’s or management company’s costs of maintaining, repairing, insuring and managing the building or estate, where allowed by the lease. A reserve fund is money collected through service charges to pay for future major works. Section 20 consultation is the statutory process used when certain major works or qualifying long term agreements exceed legal thresholds.