The terms of the lease will usually make the leaseholder liable to pay service charges in return for services provided by the landlord or any managers that are appointed. The legal definition of a service charge is an amount payable by a leaseholder/tenant, in addition to any ground rent, for services, repairs, maintenance, improvements, insurance and the cost of management; the whole or part of which may vary, from year to year, according to the costs incurred.
The service charge applies to the communal parts of the estate and the leaseholders will incur these charges in addition to the costs of maintaining their own flat. The service charge may also include annual contributions to a reserve fund, which is service charge money set aside to help cover the costs of major works (please see the LA Information Sheet 105 Reserve Funds). Service charges must be paid to ensure that the landlord or managers have sufficient funds to provide all of the services and maintenance needed for the effective management of the property. All service charges received by landlords or managers are held in trust, which will usually ensure that these monies will be protected if the company goes into administration or liquidation