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Service charges and ground rent explained

If you buy a leasehold or new-build property, you may need to budget for service charges and ground rent. But what are these? And, more importantly, how much are they? Here’s our guide to what you need to know about both.

If you buy a leasehold or new-build property, you may need to budget for service charges and ground rent. But what are these? And, more importantly, how much are they? Here’s our guide to what you need to know about both.

Written by
Sajni Shah
Consumer expert on money and utilities
Last Updated
28 MARCH 2024
6 min read
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What is a service charge?  

A service charge is a fee that leaseholders have to pay their landlord or management agency to cover communal repairs and maintenance, for example. It’s calculated annually, but can be paid bi-annually, quarterly or even monthly.

Most flats are leasehold, which means that if you buy one of these you’ll own the flat itself but not the land it’s built on. The land is owned by the landlord, also known as the freeholder.

When working out the service charge, your landlord will usually estimate how much the maintenance costs are going to be then split this amount between the number of flats in the building.

How much are service charges?

How much you pay for your service charge will depend on where you live and the type of property it is. But, generally speaking, the more impressive your building’s facilities, the higher your service charge will be.

Landscaped gardens, lifts, gyms and concierges might all sound attractive but they cost a lot, so flats with these amenities will usually have hefty service fees. But even more modest buildings have communal areas that need maintaining, so your annual service charge will go towards making sure these costs are covered.


What’s the average service charge for flats?

According to estate agent Hamptons, the average annual service charge stood at £1,431 at the halfway point in 2023 – an 8% rise on the previous year. This was mainly down to the rising costs of building materials and insurance. 

But fees can be much higher than that, particularly in luxury apartment buildings with swimming pools and tennis courts, for example. 

In London, service charges are 25% above the average for England and Wales, at £1,792 a year. Some leaseholders even pay more than £4,000 annually. 


What does my service charge cover?

There are a number of things your service charge should cover, including:

  • Buildings insurance
  • Landscape maintenance, including grass cutting and plant care
  • Repairs to the roof, walls or communal areas, such as lifts and staircases
  • Heating, cleaning and lighting communal areas
  • Management fees and wages of any staff working in the building: a gardener, for example.

Your lease agreement should clearly set out the services you’ll be charged for. Anything outside this you shouldn’t be billed for. If the agreement isn’t clear, you have the right to ask for a summary showing how the charge is worked out and what it’s spent on. You can also ask to see receipts for work carried out.

Who pays service charges if I rent the property?

If you rent your flat, your landlord is responsible for service charges and buildings insurance. They’ll usually pass this cost on as part of your rent, but be sure to check the terms of your tenancy agreement so you fully understand what you’re expected to pay for. 

Your tenancy agreement should clearly state who is responsible for paying the service charge, as well as other bills such as council tax, utilities and broadband.

What else do I need to know about service charges?

Services charges are often a contentious issue, so it’s important you have a clear understanding of how they work and how disagreements are dealt with. Be aware of the following:

  • If you feel that your landlord is overcharging you, you should consult the Leasehold Advisory Service in the first instance. If you want to take it further, you could take your landlord to the First-Tier Tribunal, which deals with property disputes.
  • You’ll probably be expected to contribute towards a ‘sinking fund’. This is a pot of money put aside to cover any major costs, such as repainting the building or replacing the windows. It means you won’t be landed with a huge bill when the works are done. Sinking funds are designed to make sure that all tenants contribute to the cost of major work, not just those who are living in the building at the time it’s carried out. This means you probably won’t be able to reclaim the money if you sell up and the fund hasn’t been used.
  • As part of a major shake-up of the leasehold system, the government is planning to make landlords more transparent about service charges.

What is ground rent?

Ground rent is an annual charge set by the landlord, separate from service charges, that a leasehold property owner pays to rent the ground their home stands on. 

In June 2022, the Government introduced a new law banning ground rents for anyone buying a new-build home on a long lease. The reform doesn’t apply to existing leaseholders, however.

How much is ground rent?

If you do need to pay ground rent, the amount you’re charged will depend on the property. In many cases, ground rent is a nominal or ‘peppercorn’ (very low) sum.

However, some leaseholders have been caught up in the scandal surrounding the doubling of ground rents. This is where the ground rent starts at a reasonable figure – say, £250 per year – but doubles every 10 years. In this situation, leaseholders can end up facing enormous annual bills. What’s more, it can make their homes impossible to sell. 

To address this, the government has been consulting on proposals to cap ground rents for existing leases as part of a string of measures to overhaul the leasehold system.

Frequently asked questions

What do I need to understand about ground rent?

  • Read your lease closely. Is the ground rent fixed or will it increase over time? And if so, how much is it likely to rise? It’s your conveyancing solicitor’s responsibility to make you aware of information like this.
  • You don’t have to pay ground rent unless your landlord sends a formal request for it in writing.
  • Your landlord can demand ground rent going back six years.
  • Your ground rent can only increase if you agree to it or if the lease allows it.

Will service charges or ground rent affect my ability to get a mortgage?

If you’re applying for a mortgage on a leasehold property, the lender will consider service charges and ground rent during their affordability checks and whether they could rise in the future. If they think these will be too high, they could turn down your mortgage application or ask for a higher deposit.

However, most ground rents shouldn’t affect your chances of getting a mortgage. You only need to worry if there’s something in the lease that allows the ground rent to increase disproportionately. Mortgage lenders normally see it as a problem if the ground rent is more than 0.1% of the property value.

How is ground rent calculated in the UK?

Ground rent is usually only a nominal amount, say £50 to £100 per year. However, in some cases it may be calculated on the value of the property. As above, alarm bells should ring if the ground rent is more than 0.1% of the property value.

What happens if ground rent is not collected?

You don’t have to pay ground rent unless your landlord formally demands it from you. And if your landlord forgets to charge you, they can only reclaim money going back six years.

Do I have to pay my service charge?

If you don’t pay your service charge, your landlord is within their rights to take you to court for the money.

If you’re not happy with the service you’re getting, you should get in touch with the Leasehold Advisory Service rather than withholding payment.

Is council tax a service charge?

Council tax isn’t usually included as part of your service charge. Generally, this is something you’ll have to pay separately.

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Sajni Shah - Consumer expert on utilities and money

Sajni is passionate about building products, allowing Compare the Market to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.

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