Nearly a third of leasehold property disputes in the UK involve service charges, and the rules around how that money is handled have recently tightened. The biggest shift for leaseholders and landlords alike concerns the reserve fund — the pot of money set aside for major future works like roof replacements or lift overhauls. Under the Leasehold and Freehold Reform Act 2024 (LAFRA), the way these funds are demanded, reported, and held has changed in ways that affect everyone involved. Here’s what you actually need to know.
If you’re a leaseholder, a landlord, or a managing agent, these figures represent real deadlines and obligations. Miss the 18-month window on a roof repair, and that cost may never be recoverable. Fail to produce certified accounts for a block of four or more flats, and the entire service charge demand could be challenged. The reserve fund sits at the centre of this — it’s the money you’re counting on for the big stuff, and the rules now demand far more transparency around it. For a broader look at how commercial leases handle these costs, understanding service charge accounting fees for commercial rentals covers the parallel landscape.
What a service charge reserve fund actually is
It’s not a slush fund or a landlord’s rainy-day account. A service charge reserve fund is money collected from leaseholders over time, held specifically for major future expenditures — replacing a roof, repainting the exterior, upgrading a lift. The idea is to spread the cost of these big items across years rather than hitting leaseholders with a sudden five-figure bill. But the way that money is handled has been a source of tension for years. Leaseholders want to know their money is safe and being used properly. Landlords need to ensure they’re collecting enough without overcharging.
What I tend to notice is that the confusion usually starts when leaseholders see a reserve fund balance building up and wonder why their service charges aren’t going down. The answer is that the fund is meant to smooth out costs, not reduce them. Under LAFRA 2024, the rules now make it much harder for landlords to treat this money casually. If you’re a leaseholder trying to make sense of your annual statement, essential guidance for UK commercial space rentals offers a useful framework for understanding what you’re entitled to see.
Why the reserve fund rules matter now more than ever
The practical consequence of getting reserve fund management wrong is straightforward: landlords can lose the right to recover costs, and leaseholders can be hit with unexpected demands. Consider a block of flats where the managing agent has been collecting a reserve fund contribution for years but keeping it in the same account as general service charge money. Under the new rules, that’s no longer acceptable. The money must sit in a designated trust account, separate from the landlord’s or agent’s own funds, and any interest earned must be credited back to the fund.
The 18-month rule adds another layer. If a roof repair was completed in January 2025, the landlord must notify leaseholders and demand payment before July 2026. Wait until September 2026 without serving the prescribed notice, and that cost is gone — the landlord cannot recover it through the service charge. For buildings with four or more dwellings, the accounts must now be certified by a qualified accountant, introducing formal audit requirements that didn’t exist before for many residential blocks.
One scenario that illustrates the tension: a leaseholder in a six-flat building receives a demand for £8,000 towards a new roof. They check the reserve fund balance and find it’s only £2,000, despite having contributed £150 per quarter for five years. Where did the rest go? Under the new rules, the landlord must provide a written statement of accounts within six months of year-end, including a balance sheet showing exactly what’s in the reserve fund. If that statement isn’t produced, or if the money wasn’t held in a designated trust account, the leaseholder has grounds to challenge the entire demand. For a deeper look at how these dynamics play out in commercial settings, commercial property trends in the UK covers what landlords may not be volunteering.
Where leaseholders and landlords go wrong with reserve funds
Treating the reserve fund as a general slush fund
The most common error I see is landlords or managing agents dipping into the reserve fund to cover routine maintenance or short-term cash flow gaps. Under LAFRA 2024, service charge money — including reserve funds — must sit in a designated trust account, separate from all other money. If a landlord uses reserve fund money to pay for a boiler repair that should come from the annual service charge, they’re breaching trust accounting rules. The fix is straightforward: maintain separate accounts for routine service charges and reserve funds, and document every transfer. If you’re unsure whether your current setup complies, consulting a tenant landlord lawyer who specialises in leasehold disputes can clarify your obligations.
Missing the 18-month deadline on major works
This is the one that costs landlords real money. The 18-month rule applies to all service charge costs, not just major works. If a contractor finishes a job in March 2025 and the landlord doesn’t issue a demand until October 2026, that’s 19 months — too late. The prescribed notice must be served within the 18-month window, and it must follow the new prescribed format under LAFRA 2024. The notice must include the landlord’s and leaseholder’s names and addresses, the total amount demanded, the period it covers, payment deadlines, and a summary of the leaseholder’s rights. Miss any of these elements, and the demand may be unenforceable.
Failing to produce certified accounts
For residential buildings with four or more dwellings, the landlord must provide a written statement of accounts within six months of the end of each service charge accounting year. This isn’t a spreadsheet or a summary — it’s a formal income and expenditure account, a balance sheet, details of the reserve fund balance, and a summary of any major works carried out. A qualified accountant must certify these accounts. I’ve seen landlords assume this only applies to large developments, but the threshold is four dwellings. A four-flat conversion triggers the requirement. If the accounts aren’t produced, leaseholders can challenge the service charge demands for that year.
Not disclosing insurance commissions
Under LAFRA 2024, landlords must disclose any commission or payment they receive in connection with building insurance policies. If they fail to do so, they cannot recover the insurance premium through the service charge. This is a significant change. Previously, many landlords collected commission quietly and leaseholders had no way of knowing. Now, the commission must be disclosed, and if it isn’t, the landlord bears the insurance cost themselves. For leaseholders, this means checking your annual statement for a clear breakdown of insurance costs and any commissions paid.
→ Scroll right to see all columns
| Requirement | Residential (4+ dwellings) | Commercial |
|---|---|---|
| Annual accounts deadline | 6 months after year-end | 4 months after year-end |
| Accountant certification | Required (qualified accountant) | Required |
| Trust account for funds | Mandatory | Mandatory |
| Insurance commission disclosure | Required | Required |
| Historic records retention | 6 years | 6 years |
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How to manage a service charge reserve fund properly under the new rules
Set up a designated trust account from day one
The first step is non-negotiable: all service charge money, including reserve fund contributions, must sit in a designated trust account. This account must be separate from the landlord’s or managing agent’s own money. The money must be traceable, and any interest earned must be credited back to the service charge fund. For landlords setting this up, the process involves opening a client money account with a bank that offers trust accounting, ensuring the account name clearly identifies it as a service charge trust account, and setting up automatic transfers for reserve fund contributions. If you’re a leaseholder and your statement doesn’t mention a designated trust account, that’s a red flag worth raising with a property lawyer.
Issue demands in the prescribed format
Every service charge demand must now follow the prescribed format under LAFRA 2024. This means including: the names and addresses of both landlord and leaseholder; the total amount demanded based on the annual service charge budget; the period the demand covers; payment deadlines and consequences for non-payment; and a summary of the leaseholder’s rights. The budget must accompany the demand at the start of the service charge year. If a demand doesn’t follow this format, it may be unenforceable. For managing agents, this means updating your demand templates and training your team on the new requirements. A business lawyer can review your templates to ensure compliance.
Produce certified annual accounts on time
For residential blocks with four or more dwellings, the deadline is six months from the end of the service charge accounting year. The accounts must include an income and expenditure account, a balance sheet, details of the reserve fund balance, and a summary of any major works carried out. A qualified accountant must certify these accounts. For commercial properties, the deadline is four months under the RICS Service Charge Code 2026. Finance teams should start preparing accounts well before the year-end, ensuring all invoices and receipts are filed and that the reserve fund balance is clearly documented. If you’re a leaseholder and the accounts are late, you have grounds to challenge the service charge for that period.
Respond to leaseholder information requests promptly
Leaseholders now have the right to request and receive contracts with suppliers and contractors, invoices and receipts for work carried out, insurance policies and any related commission details, fire risk assessments, and historic records going back up to six years. Managing agents must respond to these requests promptly. Only genuinely commercially sensitive information can be withheld. What I’d do in this situation is set up a dedicated email address for information requests and a system for tracking responses. If a leaseholder requests records from four years ago, you need to be able to produce them within a reasonable timeframe. A tenant landlord lawyer can advise on what counts as commercially sensitive and what must be disclosed.
Track and disclose insurance commissions
Under LAFRA 2024, any commission or payment received in connection with building insurance policies must be disclosed to leaseholders. If it isn’t disclosed, the landlord cannot recover the insurance premium through the service charge. This means landlords and managing agents need to review their insurance arrangements, identify any commissions or rebates, and include them in the annual statement. For leaseholders, this is a new right worth exercising — ask your landlord or managing agent for a breakdown of insurance costs and any commissions paid. If they can’t or won’t provide it, the insurance premium may not be recoverable through the service charge.
Frequently asked questions about service charge reserve funds
Can a landlord use reserve fund money for routine repairs? ▾
What happens if my landlord doesn’t provide certified accounts? ▾
How do I check if my reserve fund is in a designated trust account? ▾
What counts as ‘commercially sensitive’ information that can be withheld? ▾
Does the 18-month rule apply to reserve fund contributions? ▾
Can I dispute a service charge demand if the reserve fund balance seems wrong? ▾
The bottom line on reserve fund compliance
The new rules under LAFRA 2024 aren’t optional, and they’re not minor tweaks. They represent a fundamental shift in how service charge money — especially reserve funds — must be handled. For landlords and managing agents, the cost of non-compliance is losing the ability to recover legitimate costs. For leaseholders, the new rights provide real leverage to ensure their money is being used properly. The single most important step is ensuring reserve fund money sits in a designated trust account, separate from everything else, with clear records and certified accounts produced on time. If this was useful, you might also want to read understanding public market lease agreements in the UK.
Sources and Further Reading
Understanding service charge accounting fees for commercial rentals — A practical breakdown of how service charges are calculated and what leaseholders should look for in their statements.
Commercial property trends in the UK — What landlords may not be volunteering about service charge practices and how leaseholders can protect themselves.
Cox Hinkins (2024). New rules for service charge accounting. 🔗
Royal Institution of Chartered Surveyors (2025). Service Charges in Commercial Property Professional Standard, 2nd edition. 🔗
UK Government (2024). Leasehold and Freehold Reform Act 2024. 🔗
