Introduction

Every year, leaseholders across the UK wait nervously for the new service charge budget. It’s common to hear people ask: ‘What’s a reasonable annual rise – maybe inflation?’ But is that really the right way to think about it? The truth is, service charges aren’t like rent or a subscription fee that simply goes up by a set percentage. They’re based on real costs: the cleaning contract, the gardener’s bill, the insurance premium, the electricity for the hallways. In this blog, we’ll explore why simply indexing charges to inflation isn’t the answer, what directors of management companies should be doing instead, and how leaseholders can tell if their service charges are fair.

What actually decides the level of service charges each year?

Service charges are a function of the budget, which itself is based on the real costs of running the block. This includes contracts for cleaning, gardening, repairs, insurance, staff, and any equipment on site. If those costs go up, the budget goes up – but there’s no rule that says charges must rise automatically by inflation.

Each year a building will have slightly different needs and for example in a year when major works are due, service charge costs may rise significantly higher than inflation.

Do service charges automatically rise with inflation?

No. Service charges don’t have to increase just because inflation has gone up. They rise (or sometimes even fall) depending on the actual input costs. For example, if insurance premiums drop one year, the budget might fall too. So the link between inflation and service charges isn’t direct.

When preparing a service charge budget the correct way to do so is to look out the costs of contracts, review contract terms and then to budget for extras that might arise. For example: there is no point just budgeting for the lift maintenance contract, to be prudent you should also budget for some lift repairs and call outs too.

Why shouldn't directors use inflation and what should they do instead?

Because it’s lazy accounting. Directors of resident management companies (ManCos) and RTM companies have a duty to base budgets on real numbers, not just guesses. Indexing by inflation risks overcharging leaseholders and doesn’t reflect what the building really needs.

Just increasing a budget by inflation may well lead to not enough money being collected, that would create a service charge shortfall (more spent than collected), and then as service charges are not for profit and section 27 of the landlord and tenant act requires a balancing charge to be levied, what one has not prudently budgeted for at the beginning of the year has to be collected as a balancing charge at the end. So the trust is you might as well budget properly in the first place.

Directors should look at actual contracts, quotes, and known costs. They should think about upcoming maintenance, insurance renewals, utility bills, and staff wages if relevant. Only after reviewing these figures should they set the budget – not by applying a blanket percentage increase.

How can leaseholders check is their service charge rise is fair

Leaseholders have the right to see a summary of the budget and accounts. If charges seem to be going up every year by the same percentage, it’s reasonable to ask why. Good directors or managing agents will explain the increases in plain English and link them to real costs.

Leaseholders can also within six months of the year end serve a section 22 notice and require copies of all invoices too. Most good managing agents ought to share all invoices on their online portal for owners to see. Ringley one of London’s leading managing agents certainly does, and as ServiceChargeSorted.co.uk is the brainchild of the Ringley group, even though it is a budget financial and legal administration service for small blocks of flats, similarly it includes copies of all invoices paid for all owners to see.

What happens if service charges are set unreasonably?

If charges are unreasonable or not based on the lease, leaseholders can challenge them at the First-tier Tribunal. This is a safety net, but ideally it shouldn’t get that far. Transparency, consultation, and careful budgeting are the best ways to avoid disputes in the first place.

So, is it a silly question to ask if service charges should rise by inflation every year? Not silly – but a bit misleading. Inflation affects input costs, but service charges should always be tied to real budgets, not automatic uplifts. For directors, the golden rule is simple: check the actual costs, plan carefully, and be transparent with leaseholders. That way, everyone knows they’re paying a fair share – no more, no less.

Need to manage a small block of flats without the cost of an agent? ServiceChargeSorted.co.uk lets you create a service charge budget online, upload repair invoices, and handles the banking, bookkeeping, arrears chasing, legal process, and year-end accounts—complete, transparent, and agent-free.

ServiceChargeSorted.co.uk empowers small blocks of flats to handle administration themselves. Input your budget, upload any invoices, and we manage invoice payments, accounts, arrears, legal actions, reconciliation, annual accounts, and Companies House filings—all via a user-friendly online interface.