Nearly two-thirds of leaseholders who challenged their service charges at tribunal said the process was too expensive and complicated. That figure has stuck with me since I first read it, because it points to a deeper problem: the rules around service charges — and especially reserve funds — have been confusing for years. I’ve been writing about property finance long enough to see the same questions come up again and again. Landlords ask whether they’re holding the money correctly. Leaseholders ask whether they even have to pay into a reserve fund at all. The truth is, both sides have been working with outdated guidance, and the rules have just changed in a big way.
The Leasehold and Freehold Reform Act 2024 (LAFRA 2024) and the updated RICS Service Charge Code 2025 have introduced the biggest overhaul of service charge regulation in decades. If you own or manage a residential building with shared areas, the way you collect, hold, and report reserve fund money has changed. Here’s what you actually need to know.
What a reserve fund actually is — and why the legal definition matters
Most people assume a reserve fund is just a savings pot for future repairs. Legally, it’s more specific than that. Under LTA 1985 s.18, any amount a leaseholder pays that varies according to the cost of maintaining the building counts as a service charge. Reserve fund contributions vary based on anticipated future costs, so they fall squarely within that definition. That matters because it triggers the reasonableness test under s.19: the contribution is only payable if the cost it relates to was reasonably incurred and of a reasonable standard.
What I’d do if I were a landlord right now is check whether my reserve fund contributions are backed by a current RFAR. If they’re not, I’d commission one before the next service charge year starts. It’s the single best defence against a reasonableness challenge.
Why the new rules hit landlords and leaseholders differently
The government’s 2025 consultation identified four main problems: inconsistent demand formats, delayed accounts, limited access to supporting documents, and high dispute costs. The new rules target each one. For landlords, the biggest change is the mandatory standardised demand format under LAFRA 2024. If a demand doesn’t include the landlord’s name and address, the total amount, the period it covers, payment deadlines, and a summary of the leaseholder’s rights, it may be unenforceable. That’s a hard stop — not a suggestion.
For leaseholders, the enhanced rights to information are the real shift. Landlords must now provide access to contracts, invoices, insurance policies, fire risk assessments, and historic records going back six years. Only genuinely commercially sensitive information can be withheld. If you’re a leaseholder and your landlord refuses to show you the invoices for last year’s roof repair, that refusal may now be unlawful.
Consider a scenario where a building has 12 flats and the landlord demands a £3,000 reserve fund contribution per flat without providing a budget or a RFAR. Under the old rules, leaseholders could challenge it, but the process was slow. Under the new rules, the demand itself may be unenforceable because it doesn’t follow the prescribed format. That’s a meaningful shift in leverage.
What I notice is that the demographic split matters here. Leaseholders in buildings with fewer than four dwellings have fewer protections under the new annual reporting requirements — the qualified accountant certification only applies to buildings with four or more properties. If you’re in a small block, you may need to be more proactive about requesting information.
Where landlords and leaseholders get the reserve fund rules wrong
The most common mistakes I see fall into three categories. Each one has a clear fix under the new rules, but the fix only works if you know it exists.
Holding reserve fund money in the wrong account
Under LTA 1987 s.42, reserve fund money must be held in a designated trust account. Mixing it with the landlord’s operating funds is a breach of the law. If the landlord becomes insolvent, the reserve fund money could be lost to creditors. The fix is straightforward: open a separate designated trust account at a bank that offers them, and transfer all reserve fund contributions into it immediately upon receipt. The RICS Professional Statement requires this for RICS members, but even non-members should follow it to avoid tribunal challenges.
Demanding contributions without a current RFAR
The most common source of reserve fund disputes is a large special levy served at short notice without adequate forward planning. If the landlord hasn’t commissioned a RFAR in the last five years, the contribution rate may be challenged as unreasonable. The fix is to commission a RFAR from a qualified surveyor before the next service charge year. The report should set out the planned maintenance schedule, the anticipated costs, and the recommended annual contribution. Without it, the landlord is essentially guessing — and the tribunal knows it.
Failing to follow the s.20 consultation procedure for major works
If the landlord intends to carry out major works that will cost any single tenant more than £250 in contributions, the s.20 consultation procedure must be followed. Stage 1 is a notice of intention describing the proposed works and inviting observations within 30 days. Stage 2 is a notice of estimates with at least two quotes and a further 30-day observation period. If the landlord fails to comply, the statutory cap of £250 per tenant applies — the landlord cannot recover more than that through the service charge. The only escape is a dispensation from the First-tier Tribunal under s.20ZA, which is granted only if it’s just and equitable to do so.
What I’d do if I were a landlord planning major works is start the consultation process at least six months before the work begins. The 30-day observation periods add up, and rushing the process is the fastest way to trigger a cap.
→ Scroll right to see all columns
| Stage | Action required | Time limit |
|---|---|---|
| 1 — Notice of intention | Describe proposed works; invite observations; invite contractor nomination | 30 days for observations |
| 2 — Notice of estimates | Provide at least 2 estimates; summarise observations; invite further observations | 30 days for observations |
| 3 — Notice of reasons (if applicable) | Explain why lowest or nominated estimate not accepted | Before contract award |
How to manage a reserve fund properly under the new rules
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The new rules create a clear framework. Here’s how to follow it step by step.
Set up the right account structure
Open a designated trust account specifically for reserve fund contributions. Do not mix this money with operating funds or rent receipts. The account should be interest-bearing, and the interest should be credited to the reserve fund, not the landlord’s general account. If you’re a leaseholder and you suspect the money isn’t in a trust account, you can request proof under the enhanced information rights — the landlord must provide access to bank statements and account records.
- 1Open a designated trust accountContact your bank and ask for a designated client trust account. Transfer all existing reserve fund money into it immediately.
- 2Commission a RFARHire a qualified surveyor to produce a Reserve Fund Adequacy Report covering the next five years. Use this to calculate the annual contribution rate.
- 3Issue a compliant demandUse the prescribed format under LAFRA 2024. Include the budget, the RFAR summary, and the leaseholder’s rights. Send it at the start of the service charge year.
- 4Provide annual accounts within 6 monthsFor buildings with 4+ dwellings, a qualified accountant must certify the accounts. Include the reserve fund balance and a summary of major works.
Disclose insurance commissions and administration charges
Under LAFRA 2024, landlords must disclose any commission or payment received in connection with building insurance policies. If they fail to do so, they cannot recover the insurance premium through the service charge. Administration charges — fees for providing information or granting consents — must also be reasonable. If you’re a leaseholder and your landlord charges £100 for a copy of the fire risk assessment, that may now be challengeable as unreasonable.
Prepare for the future: what’s coming next
The RICS Service Charge Code 2025 reforms are still rolling out, and the government has indicated further secondary legislation is on the way. The most significant upcoming change is the requirement for all service charge demands to be submitted through a central digital platform, which will make it easier for leaseholders to compare charges across buildings. If you’re a landlord, now is the time to digitise your records. If you’re a leaseholder, start keeping a file of every demand and every payment — you’ll need them for the new digital system.
Frequently asked questions about landlord service charge reserve funds
Can a landlord demand a reserve fund contribution without a RFAR? ▾
What happens if the landlord goes bankrupt and the reserve fund isn’t in a trust account? ▾
Can I challenge a reserve fund contribution after I’ve paid it? ▾
Does the 18-month rule apply to reserve fund contributions? ▾
What should I do if my landlord refuses to show me the invoices? ▾
The new rules are a genuine improvement for both sides. Landlords get a clear framework that reduces the risk of disputes, and leaseholders get enforceable rights to information and fair demands. My advice is simple: if you’re a landlord, commission a RFAR, open a trust account, and follow the prescribed demand format. If you’re a leaseholder, exercise your information rights and keep records of every demand and payment. The tribunal is now on your side if the rules aren’t followed.
If this was useful, you might also want to read Understanding Tenant Service Charge Interest in the UK.
Sources and Further Reading
Beyond Location: What Hidden Costs Lurk in Your UK Commercial Lease? — A practical guide to the service charge and other costs that often catch tenants off guard.
New Rules for Service Charge Accounting. Cox Hinkins, 2025.
Landlord Service Charge Reserve Fund UK. LetSafe UK, 2025.
