Tenants of leasehold properties are subject to a number of additional charges on top of standard payments like rent, utility bills, and council tax. You’ll also be liable for some additional charges too.
Let’s take a look at these charges and your rights as a leaseholder, with support from our team of residential property solicitors.
What are ground rent and service charges?
Ground rent and service charges are two payments that leaseholders may be eligible for. These will be paid either to the freeholder directly (your landlord) or to their property management company.
They cover two separate charges, and they should both be highlighted within a tenancy agreement. Carry on reading for more information.
Ground rent is a fee that leaseholders might be asked to pay in order to occupy a particular plot of land. This ground rent is collected separately from the service charge and usually is relatively small, less than £200 a year.
A freeholder needs to formally ask the leaseholder to pay ground rent. They must do so in writing and include the following information; otherwise, the request could be unenforceable.
- Name of the leaseholder
- Name and address of the freeholder
- Name and address of the managing agent (if payment needs to be made to them)
- The period of time that ground rent covers
- How much has to be paid
- The date payment must be made by
The cost of ground rent can vary, and it is typically collected on an annual or six-monthly basis. Freeholders can ask for six years’ worth of backdated payments.
You can be taken to court if you don’t pay ground rent; however a freeholder can only do this if you owe more than £350 and have been in arrears for more than three years. Bear in mind that if your annual ground rent is more than £250 (£1,000 in Greater London), this rule does not apply.
A service charge covers the maintenance costs of your building and the communal spaces within it. It covers:
- Cleaning of the communal areas
- Maintenance of any lifts and doors
- Drainage and water supply
- Grounds maintenance
- Building insurance
- Management charges
- Reserve fund (this is when money is requested to build up a fund for future works)
Service charges can vary year-on-year depending on what repairs and maintenance need to be carried out. For example, if a freeholder (also known as a landlord) redecorates the interior of the building every five years, this will be reflected in that year’s charges.
Service charges are usually paid on an annual basis.
If a freeholder has spent more on service charges than initially estimated, they have the right to recover the shortfall from the leaseholder through a ‘balancing charge’. Conversely, if the leaseholders overpay, the credit should be taken off the subsequent service charge request.
You have the right to ask for a breakdown of service charges, which the freeholder must send to you within 30 days. You also have the right to challenge a leaseholder and take it to a tribunal if you think a charge is unreasonable or the standard of work is poor.
If a freeholder plans to carry out works that will cost each leaseholder more than £250 (or £100 a year), they must take it to consultation. Leaseholders can have their say on the costs and make suggestions, for example, if they know a tradesperson who can carry out the work more affordably.
Who pays service charge landlord or tenant?
Who pays the service charge is up to the landlord’s discretion. However, if your landlord wants you to pay the service charge, then this must be included in the tenancy agreement.
This may be presented as a separate fee specifically for the service charge payment, or it may be that your rent is higher to cover the cost of the service charge.
Average ground rent and service charge in UK
Depending on where you are located in the UK, ground rent and service charges may total more than £2000 in a year. Outside of London, though, these payments are typically much less and could be under £1000.
Service charges are generally much higher than ground rent. Yet, as mentioned, these payments can be challenged if you believe you are not receiving an adequate service.
An administration charge refers to any money that the freeholder demands from the leaseholder for providing specific information or carrying out additional paperwork. This is in line with The Administration Charges (Summary of Rights and Obligations) (England) Regulations 2007.
These charges aren’t included in your service charge, just as all leaseholders won’t necessarily need these services.
Freeholders can charge you for:
- Granting approvals under your lease (for example, extending your lease or allowing you to keep pets)
- Providing information or documents you request (for example, providing your solicitor with documents needed to sell your property)
- Breaching your lease agreement
- Failing to make a service charge or ground rent payment
This charge must be reasonable, and the freeholder must provide a summary of rights and obligations with the demand for payment. If not, the leaseholder has the right to withhold payment.
The leaseholder also has the right to go to a tribunal to determine whether an administration charge is payable.