Introduction

Service charge arrears are one of the biggest headaches for directors of a Residents’ Management Company (ManCo). Without 100% of the service charges being collected, the block will simply not have sufficient cash in the bank to function – insurance, cleaning, and repairs all depend on that money coming in. So, when leaseholders don’t pay, the ManCo has to act. Many ManCo directors do not think of themselves as custodians of a business, cash flow, accounts, budgeting, corporate governance and all that running a company entails. But here’s where it gets tricky: does a Residents’ ManCo go down the forfeiture route, (forfeiture means section 146 procedures to take back a flat), or, do they head to the county court for a money judgment? The answer lies in understanding the legal powers of a Residents’ ManCo – and the fact that, unlike a freeholder, it doesn’t actually own the freehold. In this blog, we’ll unpack the options in plain English, look at the pros and cons, and explain what directors can realistically do.

What is forfeiture in the context of service charge arrears?

Forfeiture is the process where a landlord can end a lease and take back possession of the flat because of arrears. It’s sometimes called the nuclear option because it can, in theory, mean a leaseholder loses their home. But here’s the key point: only the freeholder can forfeit. A Residents’ ManCo doesn’t own the freehold, so it can’t use this tool in its own name.

Why can't a Residents' ManCo use forfeiture?

The answer lies in the title deeds, the ManCo, whilst written into the lease as a party (leases with a ManCo are usually called tri-party leases (three parties), the parties being, Freeholder, ManCo and leaseholder)). In a tri-party lease the ManCo usually exists to take on the management functions of the freeholder, it does not become the freeholder. For a ManCo to become the freeholder it would have to buy the ground rent income and reversionary interest of all the flats and would usually do this through a Freehold ManCo. In simple terms this means that the Residents’ ManCo acts as the party responsible for the management of the block instead of the Freeholder. The leaseholder still pays the freeholder ground rent and perhaps insurance (if arranged by the freeholder). So, because the ManCo does not own the reversionary rights (rights to get the individual flats back when the leases end), it cannot rely on the landlord’s ultimate remedy of forfeiture. Instead, it has to use other legal tools, like debt recovery through the county court.

County Court Money Judgement: The Practical Route

A CCJ is a court order confirming that a leaseholder owes a debt. For a Residents’ ManCo, this is the usual and most practical enforcement option for recovering service charge arrears. Once obtained, a CCJ can be enforced in several ways – such as through bailiffs, charging orders, or deductions from wages. Since forfeiture isn’t available to a ManCo, the CCJ route isn’t just practical but essential. It provides a fair and legally sound way to turn arrears into an enforceable debt while keeping the leaseholder’s home secure.

What risks do Residents' ManCos face if arrears aren't tackled?

If arrears aren’t dealt with quickly, the block’s finances can spiral to disaster. Insurance premiums, utility bills, and contractors all need paying. If too many leaseholders fall behind, the whole building can suffer, and directors may face angry neighbours or even personal stress. The key is acting early and consistently.

The problematic thing about service charge arrears is that they reduce the amount of money collected, therefore available to spend. And, because service charges are not for profit, at the end of the year what is not spent has to be returned to leaseholders by way of a balancing charge. So the less you spend, the more you give back, and if only one or two people are paying, there will either be nothing to give back, or even less money will be available the next year to keep things running.

How can Residents' ManCos reduce the chances of arrears in the first place?

Good communication is everything. Leaseholders are far more likely to pay if they understand what their money is used for. Sending clear budgets, giving updates on repairs, and being transparent with accounts all help. Offering payment plans for those in genuine difficulty can also prevent small arrears from turning into big disputes – but payment plans should not be a longer term mechanism as cash is needed to run the block and you will not want to upset contractors leaving them willing to attend your next emergency because they are paid late.

Forfeiture might sound dramatic, but for a Residents’ ManCo it’s not even on the table – only the freeholder can do that. The real route for a ManCo is the county court, where a CCJ can turn arrears into enforceable debts. It’s not as flashy as forfeiture, but it’s fair, realistic, and legally sound. With clear communication, firm action, and good management, service charge arrears don’t have to derail your block’s finances.

Wrapping Up: Keep Your Block Running Smoothly with Service Charge Sorted

When you live in a smaller block, every penny of the service charge really matters. One person falling behind on payments can throw off the whole budget—and that means delays in repairs, maintenance, or even basic services. Not ideal.

That’s where Service Charge Sorted comes in.

We make it easy to chase and collect unpaid service charges, without the stress or awkwardness. Whether you're a resident trying to keep things fair or a managing agent juggling multiple blocks, we help you stay on top of arrears and keep cashflow steady.

No drama. Just simple, effective debt collection tailored for small blocks.

Want to take the pressure off? Visit servicechargesorted.co.uk and let’s get it sorted.