LTA 1985 s. 18

What counts as a service charge: LTA 1985 s. 18

Defines a service charge as an amount payable by a dwelling tenant for services, repairs, maintenance, insurance, or management that varies with relevant costs.

Official text LTA 1985 s. 18 — United Kingdom

In the following provisions of this Act “ service charge ” means an amount payable by a tenant of a dwelling as part of or in addition to the rent— which is payable, directly or indirectly, for services, repairs, maintenance , improvements or insurance or the landlord’s costs of management, and the whole or part of which varies or may vary according to the relevant costs. The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. For this purpose— “ costs ” includes overheads, and costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period.

Text in force at .

Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.

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What it actually says

Section 18 is the gate. Everything that follows in the Act - the reasonableness limit in section 19, the consultation requirement in section 20, the eighteen-month rule in section 20B, the tribunal's jurisdiction in section 27A - applies only to an amount that is a "service charge" as this section defines it. There are two limbs and both must be satisfied. The amount must be payable by a tenant of a dwelling as part of or in addition to the rent, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management. And the whole or part of it must vary, or be capable of varying, according to the relevant costs.

The variability limb is the one that decides real cases. A charge fixed by the lease at a set sum, with no mechanism for it to move with what the landlord actually spends, is not a service charge for these purposes, and the statutory protections do not attach to it. Conversely a charge does not escape by being labelled rent or by being collected as an "estate charge": what matters is the substance, whether it is payable for the listed matters and whether it varies with cost.

Subsection (2) defines relevant costs as the costs or estimated costs incurred, or to be incurred, by or on behalf of the landlord or a superior landlord, in connection with the matters for which the charge is payable. Subsection (3) adds two things people miss: "costs" includes overheads, and costs are relevant costs whether they were incurred in the service charge period, an earlier period, or a later one. That is what allows a landlord to charge in one year for work paid for in another - subject, importantly, to the eighteen-month limit in section 20B.

When it applies

  • Working out whether a demand from a freeholder or managing agent attracts the statutory protections at all.
  • A fixed annual charge under the lease that the leaseholder wants challenged as unreasonable.
  • A landlord recovering management overheads and staff costs through the service charge.
  • Costs from an earlier year appearing in this year's account.
  • Insurance premiums or improvement works billed through the service charge.

What this section does not say

  • It does not cover ground rent. Rent is not a service charge, and challenges to rent go down a different route.
  • It does not cover a genuinely fixed charge. If the amount cannot vary with the landlord's costs, the second limb of subsection (1) is not met.
  • It does not apply outside lettings of dwellings. Commercial service charges are governed by the lease and the general law, not by these sections.
  • It does not by itself limit anything. Section 18 only defines; the limits are in sections 19, 20 and 20B.
  • It is not the same as an administration charge, which is dealt with by separate legislation.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

Leaseholders in a small block receive a demand described as a fixed annual estate charge. It has risen by a third in two years. The freeholder says that because it is fixed, none of the leaseholder protections apply to it.

How the wording applies

Section 18 is the gate: sections 19, 20, 20B and 27A only reach an amount that is a service charge as defined, and there are two limbs. The first - payable by a tenant of a dwelling for services, repairs, maintenance, improvements, insurance or management - is usually satisfied. The fact everything turns on is the second: whether the whole or part of the amount varies or is capable of varying according to the relevant costs. A label like 'estate charge' does not decide it; what the lease actually provides does.

How the parties settled it

The freeholder produces the lease clause and the last three years' expenditure figures within a month, and both sides agree to treat the charge as within the statutory regime if the figures show it moving with cost.

Illustrative example

A service charge account includes the managing agent's staff costs, an allocation of office overheads and a management fee. A leaseholder says overheads are the landlord's own business expenses and should not be in the account at all.

How the wording applies

Subsection (1) expressly includes the landlord's costs of management within the matters a service charge can be for, so the objection cannot succeed as a point of principle. Subsection (2) defines relevant costs as costs incurred or to be incurred by or on behalf of the landlord or a superior landlord. The fact the argument really turns on is not whether management costs are chargeable but whether these ones were reasonably incurred - which is section 19, not section 18.

How the parties settled it

The agent provides a breakdown separating the fixed management fee from disbursements, and the leaseholders agree to take any remaining objection to the reasonableness of the fee rather than to its inclusion.

Related sections

LTA 1985 s. 19 Service charges capped at reasonable costs: LTA 1985 s. 19 LTA 1985 s. 20 Caps contributions without consultation: LTA 1985 s. 20 LTA 1985 s. 20B 18-Month Rule for Service Charge Demands: LTA 1985 s. 20B LTA 1985 s. 27A Challenge paid service charges: LTA 1985 s. 27A

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We copy this text from the official publisher and re-check it against that source on every page load, but we cannot guarantee it is complete, current or free of error, and we accept no liability for any reliance on it. An amendment can take effect before a consolidation catches up. The publisher's own copy is linked below; where the two differ, it is the official one that counts.

This page reproduces the text of LTA 1985 s. 18 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in England and Wales.

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