Introduction

Running a block of flats in the UK isn’t always straightforward. When the roof starts leaking or the outside needs repainting, the costs can be huge. Normally, the money for this comes from the service charge or the reserve fund (if there is one). But what happens if there isn’t enough money saved up, or if the lease doesn’t allow for certain costs? In this blog, we’ll explore the options, the legal angles, and what leaseholders and management companies can realistically do.

What does the lease say about collecting extra money?

The starting point is always the lease. The lease is the rulebook for what the landlord or management company can charge. If the lease allows service charges to cover major works like roof repairs or redecorations, then the costs can usually be recovered this way. But if the lease is silent or restrictive, it can cause real headaches.

Can leaseholders be asked for one-off payments outside the service charge?

Asking for a one-off payment towards major works outside the normal service charge budget and demand dates is problematic. On reading most leases, in most cases, the answer is no this is not possible – not unless the lease clearly allows it. Landlords and management companies can’t just invent new charges. If major works are needed and the lease doesn’t provide for them, the usual service charge route may not cover the cost.

If there is a resident controlled freehold, right to manage or residents management company there may be the option of collecting members contributions – see Morshead Mansions case, otherwise the options are fairly limited – but the risk of getting sued for diminution in value by a leaseholder remains – as just like running any other company, the directors of the ManCo have to uphold the covenants of the lease, usually whether or not they have the funds to do so.

Sometimes, leaseholders agree to chip in voluntarily outside the formal service charge. For example, if everyone agrees to repaint the block a year earlier than planned, they might all put money in a pot. This can work in small, friendly blocks – but it’s risky. If one person doesn’t pay, there’s no legal way to force them to do so. Then, if they don’t, or plead hardship at the last moment, others are left having to subsidise them, never knowing if they will get repaid.

Can the lease be varied to allow for capital expenditure?

Yes, leases can be varied, but it’s not a quick fix. It usually requires agreement from most or all leaseholders, and sometimes it needs approval from a tribunal. While it takes effort, varying the lease can be the best long-term answer for blocks that face regular big costs without enough legal cover. These options are covered in section 37 of the landlord and tenant act 1985. Majority consent is required, 75% and where there is a small number of flats not more than 10% must block such a request.

Is borrowing money an option for major works?

Some resident management companies consider taking out loans to cover major works. The idea is that the cost is spread over time, and leaseholders then pay it back through the service charge. But this is complicated – not every lease allows it, and lenders often want guarantees that can be hard to give. The freehold management company is only worth todays value of the reversion plus the investment value of the ground rents. If all leaseholders have been sold lease extensions, its value may be very little – so with no security for bank loans borrowing is rarely an option.

For resident management companies and right to manage companies who do not have any ownership rights to the freehold title the opportunity to borrow is extinct, not a reality.

What legal protections do leaseholders have in these situations?

Leaseholders are protected by law against unfair charges. Even when the lease allows recovery of costs, the charges still have to be reasonable. If leaseholders think they’re being asked to pay something unfair or outside the lease, they can challenge it at the First-tier Tribunal. This gives a safeguard, but it’s always better if issues are sorted out with good communication first.

When big repair bills arrive and the service charge or reserve fund can’t cover them, it’s easy for stress and disputes to follow. The lease sets the ground rules, but in real life, neighbours often have to work together, be open about options, and sometimes even look at changing the lease. While the law gives leaseholders protection, the best outcomes usually come from planning ahead and keeping everyone in the loop.

Managing the finances of a small residential block doesn’t have to involve an agent. With ServiceChargeSorted.co.uk you simply set the collection budget online, upload maintenance invoices, and we’ll process payments, track everything, pursue late payments, produce annual accounts, and keep your block’s finances fully visible—through a bank-like dashboard.