The service charge budget is the most important financial document in a leasehold building. It is the basis for every demand, and for most of the questions residents ask. A good one is complete, based on evidence, and written so that a non-accountant can follow it.
Start with the lease
Check what the lease says can be charged, how it is apportioned between flats, the accounting year, when payments are due and whether on-account payments are allowed. A cost that the lease does not cover cannot normally be recovered from leaseholders, however sensible it seems.
Build from last year’s actuals
Take the actual costs for the last full year, line by line, and adjust for known changes: contract renewals, inflation, insurance, work completed or planned. Show last year’s budget, last year’s actual and next year’s budget side by side.
Cover the main headings
- Insurance. Often the largest item. Use a current quote, not last year’s figure.
- Cleaning and gardening.
- Repairs and maintenance: routine and an allowance for the unexpected.
- Lifts, fire systems and other plant.
- Utilities for the common parts.
- Professional fees: accounts, company secretarial work, legal and any management help.
- Reserve fund contribution. See our reserve fund guide.
- Company costs: filings, bank charges and directors’ insurance.
Be realistic, not optimistic
A budget that is set too low leads to a shortfall, a mid-year demand and an angry meeting. One that is far too high ties up residents’ money and invites challenge. Aim for a figure you can defend line by line.
Explain it
Send each leaseholder the budget with a short note saying what has changed and why. Show the amount payable for their flat and the due dates. Offer to answer questions.
Issue demands properly
A demand for service charge must meet legal requirements, including the landlord’s name and address and a summary of leaseholders’ rights and obligations. A demand that does not may not be payable until it is corrected. Take advice or use a template that has been checked.
Monitor during the year
Compare actual spending with the budget regularly, and tell the board early if there is a problem. Where a significant overspend looks likely, discuss options before it happens.
Next steps
- Gather last year’s actuals and current quotes.
- Draft the budget and check it against the lease.
- Agree it at a board meeting.
- Send it, with a covering explanation, before the new year starts.
This guide is general information, not advice on your circumstances. Leasehold law is detailed and changes: check the current position and take advice before acting.