Service charges are payments by the leaseholder to the landlord for all the services the landlord provides. These will include maintenance and repairs, insurance of the building and, in some cases, provision of central heating, lifts, porterage, lighting and cleaning of common areas etc. . Usually the charges will also include the costs of management, either by the landlord or by a professional managing agent.
Service charges can vary from year to year; they can go up or down without any limit other than that they are reasonable.
Details of what can (and cannot) be charged by the landlord and the proportion of the charge to be paid by the individual leaseholder will all be set out in the lease. The landlord arranges provision of the services. The leaseholder pays for them.
All costs must be met by the leaseholders; the landlord will generally make no financial contribution. Most modern leases allow for the landlord to collect service charges in advance, repaying any surplus or collecting any shortfall at the end of the year.
The landlord can only recover those costs which are reasonable. Leaseholders have powerful rights to challenge service charges they feel are unreasonable at the Leasehold Valuation Tribunal (LVT).
When considering the purchase of a leasehold flat, it is important for your conveyancing lawyer to find out, for personal budgetary purposes, what the current and future service charges are likely to be. Also check if there is a reserve fund, and what plans there are for major works that could affect the service charge in the next few years after your completion of your conveyancing transaction.