Service Charge Apportionment: Lease Shares and Schedules

Apportionment is how a block's service charge costs are divided between the flats. Each lease says what share its flat pays, and that share is what turns a £20,000 budget into fourteen separate demands. Get it wrong and every demand you issue is wrong in the same way.

For a volunteer director, the hard part is rarely the arithmetic. It is that the leases do not all say the same thing, that many estates split costs across more than one "pot", and that nobody wrote any of it down in one place when the managing agent left.

This guide covers blocks in England and Wales.

Where the share comes from: the lease, not the directors

The starting point is that each leaseholder pays what their lease says they pay. The directors do not get to choose a fairer split, and the company cannot change a lease by passing a resolution.

Leases express the share in a handful of ways:

• A fixed percentage or fraction. "8.5% of the service costs" or "one-fourteenth". The most common pattern in modern leases, and the easiest to administer.
• Floor area. The flat's internal area as a proportion of the total. Usually converted into a percentage once, when the block is first let, and then fixed.
• Rateable value. Common in older leases. Because the values are historic, these leases are usually administered as fixed percentages worked out once from the old figures.
• "A fair proportion" or "a reasonable proportion". The lease leaves the share to be decided, often by the landlord or its surveyor. This is the most flexible wording and the most likely to be argued about.

Whatever the wording, everyone who contributes to a cost should between them account for all of it. The flats' shares totalling less than 100% is not automatically wrong — some leases leave a share with the freeholder, or with a shop or office that pays under its own lease. What the directors must never do is spread a missing share across the other leaseholders. If the contributing shares genuinely add up to more or less than the whole, see "When the shares do not add up" below.

One percentage per flat is often not enough

Many estates do not share every cost across every flat. Many leases divide costs into schedules — groups of costs shared by a defined set of flats. LevyBoard calls each of these a cost centre, which is a plainer name for the same thing.

A two-building estate might have:

A flat in Block A then has two percentages: its share of the estate schedule and its share of the Block A schedule. It pays nothing towards Block B's roof. A flat in Block B is the mirror image.

This is where spreadsheets break. A single "% column" cannot represent it, so the person keeping the sheet either merges everything into one pot (and charges Block A's leaseholders for Block B's roof) or keeps three sheets that drift apart.

A worked example

Using the table above, the year's budget is £4,200 for the estate schedule, £9,600 for Block A and £6,000 for Block B. Two flats:

In this example every flat contributes, so each column of shares should add up to 100% across the flats that pay into it — the estate schedule across all 14 flats, Block A across its 8, Block B across its 6. If a column comes to 103%, something is wrong before a single demand goes out. If it comes to 98%, find out who pays the other 2% before you assume an error — and never top it up from the other flats.

Showing the working on the demand itself — the schedule, the share and the resulting figure — answers most leaseholder queries before they are asked. For a single schedule, our free service charge demand generator shows each flat's share and the resulting figure, and flags a set of percentages that does not total 100%.

Reading your leases properly

When a block takes over from an agent, the apportionment usually arrives as a column in somebody's spreadsheet. Treat it as a claim to be checked, not a fact.

1. Get a copy of every lease. Not one "standard" lease. Leases granted at different times, extended leases and leases varied by deed can all differ. If a copy is missing, HM Land Registry may be able to supply one — its guidance explains how to request a copy of the deeds for registered property.
2. Find the service charge clause and the definitions. The share is often in the particulars or a schedule at the front, and the cost categories in a schedule at the back.
3. Write down, per flat, the share for each schedule and the exact wording it comes from.
4. Add up each schedule. Across everyone who contributes it should come to 100%; if the flats alone come to less, identify who pays the rest.
5. Check what each schedule is allowed to cover. A cost the lease does not allow under a schedule cannot be recovered through it, however sensible the spending.
6. Record the basis. When the next set of directors takes over, the reasoning should be in the company's records, not in one person's head.

When the shares do not add up

It happens more often than it should: leases granted over the years by a developer who changed the plan, a flat split into two, a penthouse added later. The result is a set of contributing shares that total more or less than the whole cost.

The Landlord and Tenant Act 1987 treats this as a defect that the tribunal can correct. Section 35(1) allows "any party to a long lease of a flat" to apply to the tribunal for an order varying the lease, and one of the grounds in section 35(2) is that the lease fails to make satisfactory provision for "(f) the computation of a service charge payable under the lease". Section 35(4) spells out when that ground is met — where the lease provides for the charge to be a proportion of expenditure, other tenants pay proportions too, and:

"the aggregate of the amounts that would, in any particular case, be payable by reference to the proportions referred to in paragraphs (a) and (b) would either exceed or be less than the whole of any such expenditure."

In other words, if the contributing shares add up to 103%, the block is over-recovering; at 97%, with nobody else liable for the balance, it is under-recovering and somebody — usually the company — absorbs the gap. Either way, there is a statutory route to fix the leases rather than living with it. In England the application goes to the First-tier Tribunal; for property in Wales, section 35(9) says it goes to a leasehold valuation tribunal.

What the directors should not do is quietly rebalance the percentages on the demands. A demand that charges a flat more than its lease allows is open to challenge.

Reasonableness still applies

A correct share of an unreasonable cost is still an unreasonable charge. Section 19(1) of the Landlord and Tenant Act 1985 provides that relevant costs count towards a service charge "only to the extent that they are reasonably incurred". Apportionment decides how a cost is split; section 19 decides how much of it can be passed on at all.

And a leaseholder who disputes the figure has somewhere to go. Under section 27A of the 1985 Act, an application can be made to the tribunal "for a determination whether a service charge is payable and, if it is, as to" — among other things — "(c) the amount which is payable". A clear record of each flat's share and where it comes from is the best answer to that application.

Apportionment, consultation and the £250 threshold

Apportionment also decides whether major works need consultation. In England, Section 20 consultation is triggered when works will cost any one leaseholder more than £250 — so it is each flat's share of the works, not the total bill, that you test. On an estate with schedules, the same roof job can cost a Block A flat £400 and nothing at all for a Block B flat. Our Section 20 consultation guide covers the process once the threshold is crossed.

How LevyBoard handles it

In LevyBoard you set up each flat with the percentage its lease sets for each cost centre — have the leases to hand, or import the spreadsheet you already keep. Demands are then calculated per cost centre, with the arithmetic shown. The sample service charge demand shows one flat's share across two cost centres and its reserve contribution, with the arithmetic shown.

This guide covers blocks in England and Wales and is general information based on the Landlord and Tenant Act 1985 and the Landlord and Tenant Act 1987 as published on legislation.gov.uk, not legal advice. How a particular lease apportions costs turns on its exact wording — where the leases conflict or the shares do not add up, take advice from a solicitor specialising in leasehold law, or start with the free service at the Leasehold Advisory Service (LEASE).

Sources

• Landlord and Tenant Act 1987, section 35 — application by party to lease for variation of lease
• Landlord and Tenant Act 1985, section 19 — limitation of service charges: reasonableness
• Landlord and Tenant Act 1985, section 27A — liability to pay service charges: jurisdiction
• Landlord and Tenant Act 1985, section 20 — consultation requirements
• Service Charges (Consultation Requirements) (England) Regulations 2003, regulation 6 — the £250 threshold
• HM Land Registry — get information about property and land (including copies of deeds)