A service charge statement may list insurance, communal cleaning, repairs and a reserve contribution. The amounts can be difficult to interpret if you only look at the total. Start by finding out which period the statement covers, how the costs were shared and whether the amount relates to the budget or the year’s actual spending.
This guide is for owners of leasehold flats in England with variable service charges. Your lease is the starting point for understanding which costs you contribute to and how your share is calculated.
Start with the budget and the year-end figures
A budget sets out expected spending. The year-end accounts show the costs recorded for the period. Find the documents for the same accounting year and compare the main headings. If repairs were higher than expected, ask which work was carried out and whether a large invoice explains the difference.
If you sit on a residents’ management company or right to manage board, specialist service charge accountants can help prepare the accounts and explain how spending and year-end balances are presented. That makes it easier for the board to answer residents’ questions using the same figures.
Be careful when documents use different headings. One budget may show gardening and cleaning under a single heading for communal services, while the accounts show them separately. Add the relevant lines together before comparing them. If the totals still differ, ask whether the difference came from a change in the work, a new contractor or a one-off charge.
Follow the figures through to your own statement
There are usually several figures to find. Start with the total cost for the building or estate, then identify the amount allocated to your flat and the payments already credited to your account. A separate balance may include an earlier amount carried forward. Ask for a breakdown if you cannot trace how the year-end figure and your payment history lead to the amount requested.
Make sure you are reading the documents for the same period. If the service charge year ended in March and a payment left your bank in April, check which period the agent applied it to. If you recently bought the flat, keep your completion paperwork handy and ask for an account statement that shows the period covered by each entry. That will help you identify which figures need an explanation.
Check how your share was worked out
Look for the percentage or other method set out in your lease. A development can have separate costs for a particular block and shared costs for the wider estate. Ask which schedule was used if an item seems to relate to another part of the development.
For illustration, a flat contributing 5% towards a £20,000 cleaning budget would have a £1,000 budgeted share of that line. If the year-end cost was £22,000 and the same allocation applied, the share would be £1,100. Check the lease and the statement to see how any difference is dealt with.
Check whether the same percentage applies to every item. A charge for maintaining a shared garden may be allocated across the estate, while a repair to an entrance may be allocated to one block. If the paperwork does not make this clear, ask for the calculation for the line in question and the part of the lease or schedule used to work it out.
Ask what the reserve contribution is for
Where the lease provides for a reserve or sinking fund, contributions can help spread the cost of future work. Ask what the fund is intended to cover, how much was added during the year and whether any of it was spent. If the building has a plan for upcoming works, ask how the current balance relates to those projects.
It can help to read the reserve figures alongside the repairs line. If a large project took place, ask how much of the work was paid from money already collected and how much, if any, is reflected elsewhere on the statement. Ask for the opening and closing balance for the relevant fund. Where several blocks have their own reserves, check that the figures relate to your block.
Put specific questions to the managing agent
Quote the year, heading and amount you are asking about. For example, “What work accounts for the difference between the budget and actual spending on communal repairs?” is easier to answer than a general question about why charges rose. Ask for the relevant supporting documents if you need more detail.
A short email can make it easier for the agent to respond. Start with the building name and your flat number, then list each question under its own heading. Ask for a copy of the allocation calculation if you cannot follow your share. If your records show a payment that is missing from the statement, give the date, amount and reference so it can be traced. Keep a copy of the original statement and note any revisions you receive.
If the figures still do not make sense after you receive a reply, identify the exact point that remains unresolved. You may understand what work took place but still be unclear about why the cost was allocated to your block. A focused follow-up gives the agent a chance to address the outstanding issue and leaves a record of what you have asked.
Save the budget, year-end statement and any explanation together. They give you something to compare against next year’s figures or to pass on if you join the residents’ board. For background on the different arrangements, see this guide to leasehold service charges.
