Introduction

If you live in a block of flats, you’ll know that service charges are the lifeblood of the building. They pay for everything from insurance and cleaning to repairs and long-term maintenance. But what happens when some leaseholders don’t pay? Sometimes it’s a case of can’t pay – genuine financial difficulty.

Other times it’s won’t pay – people refusing to pay because they don’t agree with the service charges, in whole due to the amount, or in part meaning some items in the budget. For RTM (Right to Manage) companies, this creates a real dilemma. Should they offer concessions or would that be unfair to the leaseholders who do pay on time? In this blog, we’ll explore the telltale signs, the risks, and the options.

What are the telltale signs of service charge problems?

Some of the early warning signs of discord in the house include late payments, repeated requests for more time, or leaseholders questioning bills in detail. In some blocks, you’ll notice the same few people always struggling or disputing charges. Spotting these signs early can help the RTM company plan its response. Such responses will need to focus on documentation that proves that the service charges are reasonable (comparable pricing evidence is useful here) or necessary (building surveyors advice can come in handy here).

What's the difference between can't pay and won't pay

Can’t pay means the leaseholder is in genuine financial difficulty – maybe they’ve lost their job or had unexpected expenses. For leaseholders that ‘can’t pay’ providing debt management advice is a good idea, such as the citizens advice debt management leaflet, or signposting them early to go and discuss the matter with their mortgage lender who may offer them a further advice.

Won’t pay is different. It’s when someone can afford to pay but refuses, often because they’re unhappy with how the block is being managed. Won’t pay leaseholders, may be withholding payment on a principle because they don’t believe works are necessary, e.g., decorations this year, a new carpet or whatever, or may just prefer to hold out as the money earns more interest in their personal bank account. For this type, the problem often is that demands and final notices are sent, but no further escalation ever happens. This means they know that a final notice is not final and can be ignored, and there is no real incentive to pay, especially if there is no interest on arrears clause in the lease, and/or any interest on arrear clause that does exist is not utilised and charged to leaseholders as a deterrent.

So as you will see, telling the difference is important, because the solutions are not the same.

Can RTM companies offer concessions- and is it fair to others?

RTM companies can sometimes agree payment plans to help people who are struggling. For example, spreading the cost over a few months instead of demanding it all at once. This can help keep relationships friendly and avoid legal action, but it should be done carefully and fairly. Payment plans can work if there are enough other leaseholders paying to cover the cash flow shortfall, if not, then the problem with payment plans is that there will be insufficient funds to pay contractors, and unpaid contractors are unlikely to be willing to turn up to the next emergency!

Discounts are not really an option as it is impossible to run the block if you don’t collect 100% of the budget to do so and in any event, would likely fall foul of the terms of the lease.

That’s the tricky part. If some leaseholders get easier terms, others may feel they’re being treated unfairly. It can create resentment, especially in small blocks where everyone knows each other. That’s why any concessions should be transparent, documented, and offered on clear terms rather than as secret deals. We don’t recommend them at all.

A commercial company can give concessions to get the money in as it is simply giving away its own profits. The challenge in the world of service charges, is that service charges are ‘not for profit’ which means that whatever is budgeted and not spent has to be given back and whatever is spent over the budget has to be collected. The overspend or credit (collected or given back) is called a balancing charge. And as a non-commercial company if you balance the books every year back to zero, and have no profits, then you have no pot from which to give discounts.

What legal options are available if leaseholders refuse to pay?

If leaseholders simply won’t pay, the RTM company can take legal action to recover the debt. This usually starts with a formal demand, then moves to the county court if needed. Ultimately, unpaid service charges can even lead to forfeiture of the lease, though that’s a last resort. Albeit, it is the freeholder to has to forfeit as the freeholder is the party that holds the reversionary interest not the RTM company. The key point is that the lease is a binding contract, and non-payers can’t just walk away from it.

How can RTM companies reduce service charge disputes?

Communication is everything. Clear budgets, regular updates, and transparent accounts make it harder for leaseholders to argue they don’t know where their money is going. Involving residents in decisions about major works also helps. When people feel consulted and informed, they’re more likely to pay without complaint.

Service charge arrears can be a real challenge for RTM companies. Balancing compassion for those in genuine difficulty with fairness to those who pay on time is never easy. The best approach combines clear communication, sensible flexibility, and a willingness to use legal remedies when absolutely necessary. Handled well, it can keep the building’s finances on track without tearing the community apart.

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.

One key point about ServiceChargeSorted.co.uk is that because it is the brainchild of the Ringley Group which includes Ringley Law, not only do ServiceChargeSorted.co.uk clients not have to go door knocking on their neighbours to collect arrears, but Ringley Law will take legal debt chase action against non-payers for you too.