Introduction

If you’re a director of a Residents’ Management Company (ManCo), one of your biggest jobs each year is setting the service charge that you want to collect, AKA the service charge budget. It might sound straightforward – add up the bills and divide them between the flats – but in reality, it’s rarely that simple. You’ve got to balance legal duties, practical needs, and the expectations of your neighbours, all while keeping the block running smoothly. In this blog, we’ll look at what ManCo directors need to know about service charges, with tips to make the job less stressful and more transparent.

What is a service charge and why does it matter?

Service charge is the money leaseholders pay to cover the costs of running and maintaining the building. This includes everything from insurance and cleaning to gardening, lighting, and repairs. Without it, the block can’t function – so getting it right is vital for everyone’s comfort and safety. It is important to have read the lease before setting the service charge budget as leases set out what expenses can form part of the service charge and if an item of expenditure is not mentioned then it is not

How ManCo directors set the service charge budget

The lease is the rulebook for setting the service charge. It outlines exactly what expenses can be charged to leaseholders. As a director, you must start with the lease and then build the budget around real costs, such as utility bills, contractor quotes, and insurance premiums. If an expense isn't explicitly or implicitly allowed by the lease, it cannot be included in the service charge. This is particularly important for Right to Manage (RTM) Companies, as costs related to the company itself—like accounts, directors and officers insurance, and a company secretary—are unlikely to be in the original lease. Therefore, these costs can only be charged to RTM company members, not all leaseholders.

To prepare the budget, start by reviewing last year's accounts and then adjust for any known changes. Check existing contracts, get updated quotes, and plan for any major works. It's also a good idea to contribute to a reserve fund if the lease permits it. The key is to base the budget on real, current numbers, not just guesses. A common mistake is simply adding an inflation percentage to last year's charges or keeping the charge the same to avoid changing standing orders. These approaches are often incorrect because building components age and expenditure is rarely consistent year over year. Furthermore, using a reserve fund to cover shortfalls caused by an inaccurate budget can violate sections 21-28 of the Landlord and Tenant Act.

How should service charge demands be issued?

Demands must be issued in line with the lease and the law. That means using the correct format, serving them at the right time, and making sure they include the statutory notes required by the Landlord and Tenant Act 1985. If demands aren’t done properly, leaseholders can legally withhold payment until they’re corrected. In some instances incorrect demands cannot be corrected, the more time passed since an invalid demand is served the greater the risk of non-recovery of the service charge becomes. And, an invalid demand is treated as if it did not exist, meaning that the method of year end accounting would need to ignore the demands and account for monies received as voluntary contributions towards the year end deficit (which would be 100% of expenditure – as the demands are void), then collect that.

What common mistakes do ManCo directors make with service charges?

The biggest mistake is treating service charges like a profit-making tool. Service charges are not for profit – they must balance actual costs.

Other common errors include forgetting to apply balancing charges, failing to keep proper records, and not communicating clearly with leaseholders. These mistakes can lead to disputes and even legal challenges.

How can ManCo directors make service charge management easier?

Good communication is the secret weapon. Share budgets, explain increases, and keep accounts transparent. Many directors also choose to appoint managing agents or use specialist services like ServiceChargeSorted.co.uk to take the pressure off. Having the right support makes the whole process smoother and reduces the risk of conflict.

Being a ManCo director isn’t always easy, and setting the service charge is one of the trickiest jobs. But with a clear budget, good records, and open communication, it can be done fairly and effectively. Remember: the service charge is there to keep the building safe, well-maintained, and enjoyable for everyone – and with the right approach, you can take the stress out of the process.

Need a Hand? Let ServiceChargeSorted.co.uk Take the Stress Out of Service Charges

Setting and managing the service charge budget isn’t just a numbers game—it’s a legal, financial, and interpersonal balancing act. For ManCo directors, especially in smaller blocks, it can feel like a full-time job. From understanding the lease to issuing compliant demands and avoiding common pitfalls, there’s a lot riding on getting it right.

That’s where ServiceChargeSorted.co.uk comes in.

We’re here to support RMC and RTM directors with expert advice, compliant demand issuing, and practical help that’s tailored to the real-world challenges of small blocks. Whether you need a one-off fix or ongoing support, we help you stay on top of the admin, reduce risk, and keep leaseholders on-side.

Here at ServiceChargeSorted.co.uk our vast experience will help keep the block finances and legal administration running so your block stay compliant with these aspects. Our swift debt collection will help you preserve your block’s cashflow.

Being a ManCo director doesn’t have to be overwhelming. With the right support, you can protect your building, your time, and your sanity.

Visit ServiceChargeSorted.co.uk and let’s get your service charges sorted—properly.