Guide · Running your block

How to set a service charge budget for your block

Setting a service charge budget step by step: what the lease allows, the usual headings, splitting costs between flats, instalments and year end.

Last reviewed 22 October 2026 by Phil, founder3 min readPlain text (Markdown)

The short answer

Start with the lease: it says what costs you can charge, how they're split between flats, when payments are due and whether you can collect in advance or for a reserve. Estimate each cost for the year under clear headings, add any reserve contribution the lease allows, split the total by each flat's share, and divide it into the lease's instalments. At the year end, compare the budget with what you actually spent and settle the difference with each leaseholder.

Key facts

Only costs the lease allows can be charged, and only to the extent they are reasonably incurred (s.19 LTA 1985).
Each flat's share comes from its lease; the shares should add up to 100%.
Payments are due on the dates the lease sets, not dates the directors choose.
Share a draft budget with leaseholders before you finalise it (good practice).
Demand any shortfall promptly at year end: costs over 18 months old may be lost.

Step 1: read the lease

Before any numbers, find these in the lease (usually in a schedule about the service charge):

What can be charged. Leases list the services and costs, often ending with a general sweeping-up clause. If a cost isn't covered, it can't go in the budget.
The service-charge year and its start date.
Advance payments. Most modern leases allow payments "on account" of estimated costs, usually in two instalments (for example on 1 March and 1 September). Some only allow charging after costs are incurred.
A reserve. Whether you can collect towards future costs. See Reserve funds.
Each flat's share. A fixed percentage, a fraction, a share by floor area, or a "fair proportion".
Paperwork. Whether the lease requires a budget, a certificate or accounts in a particular form.

Step 2: estimate each cost

Use clear headings that leaseholders will recognise. A small block's budget usually includes:

Heading	Where the estimate comes from
Buildings insurance	The renewal quote
Directors' and officers' and public liability insurance	Broker's quote, if the lease allows it to be charged
Communal electricity and water	Last year's bills and current tariff
Cleaning and gardening	Your contracts
Repairs and maintenance	Last year's spend, plus known small jobs
Fire safety and other checks	Fire risk assessment review, alarm and emergency lighting servicing
Accountancy	The accountant's quote for the service-charge accounts
Company costs	Companies House fees, bank charges, software, if the lease allows management costs
Reserve contribution	Your planned maintenance schedule, if the lease allows a reserve

Every cost must be reasonably incurred, and works must be of a reasonable standard (s.19). Keep the quotes and bills behind each line.

Step 3: split it between the flats

Multiply the total by each flat's share from its lease. Check the shares add up to 100%. If they don't, take advice: the leases may need varying (s.35 LTA 1987). Round to the penny so that the parts add up exactly to the total.

Step 4: divide into instalments

Split each flat's yearly amount across the lease's payment dates. Put any rounding difference on the last instalment so the instalments add up exactly.

Step 5: consult, then finalise

Share the draft with leaseholders and invite comments within a reasonable time. Explain big changes. It is widely regarded as good practice, and it heads off disputes.

At the year end

When the accounts are done, compare the actual costs with the budget:

Underspend: credit each flat its share (or carry it forward, if the lease says so).
Overspend: demand the balance from each flat. Do it promptly: costs incurred more than 18 months before they're demanded may not be recoverable. See The 18-month rule.

The Maple Court example

Maple Court has 8 flats, each paying 12.5% under its lease, with payments on 1 March and 1 September.

Heading	Budget
Buildings insurance	£3,600
Directors' and officers' insurance	£150
Communal electricity	£480
Cleaning	£1,560
Repairs and maintenance	£1,200
Fire alarm and emergency lighting servicing	£420
Accountancy	£600
Companies House and bank charges	£90
Reserve contribution	£2,400
Total	£10,500

Each flat pays 12.5%, which is £1,312.50 a year, or £656.25 on each of the two payment dates.

This is general information, not legal advice. Every building and lease is different. For free initial advice, contact LEASE (The Leasehold Advisory Service): https://www.lease-advice.org/

Questions people ask

Can we charge for our own time as volunteer directors?

Usually not, unless the lease allows management costs that would cover it and the members have agreed. Under the RTM model articles, directors can't be paid without the consent of a general meeting. Most self-managed blocks charge only for real costs such as insurance, repairs, accountancy and filing fees.

Can we collect monthly instead of half-yearly?

Formal demands must follow the lease's payment dates. But you can invite leaseholders to pay by monthly standing order towards the next instalment, as a voluntary arrangement.

What if costs go over budget during the year?

Check whether the lease allows a further demand during the year. If not, the shortfall is collected in the year-end balancing charge. Either way, demand it within the 18-month rule.