How to Handle Service Charge Arrears: Recovery Options for Volunteer Directors

Three leaseholders in your block haven't paid their service charges. One is six months overdue, one claims the charges are unreasonable, and one simply isn't responding. You're a volunteer RTM director, not a debt collector — but the building insurance is due and the reserve fund is running low.

Service charge arrears are one of the most common problems RTM and RMC directors face. This guide covers the practical steps to recover unpaid charges, the legal deadlines you must know, and when to escalate.

The 18-month rule: your most important deadline

Section 20B of the Landlord and Tenant Act 1985 sets a hard deadline: service charge demands must be served within 18 months of the costs being incurred. If you miss this window, the leaseholder is not liable to pay.

There is one exception: if you notify the leaseholder in writing within the 18-month period that costs have been incurred and that a demand will follow, you preserve your right to demand payment later. But the written notification must happen within the 18 months.

What this means in practice:

Issue demands promptly after costs are incurred — don't wait until year-end
If a large expense hits late in the financial year, send a written notification immediately even if the full demand isn't ready
Keep copies of all demands and notifications with dates of service

For a volunteer director juggling a day job, the 18-month rule is the single easiest compliance requirement to miss. Mark your calendar.

Step-by-step arrears recovery process

Step 1: Verify the demand is valid

Before chasing, confirm:

The service charge demand was properly served (with the leaseholder's name and address)
The demand includes the landlord's name and address (required by Sections 47–48 of the Landlord and Tenant Act 1987)
The charges relate to costs actually incurred (not estimates, unless the lease allows on-account demands)
The demand was served within the 18-month time limit

If the original demand was defective, re-serve a corrected version before pursuing arrears.

Step 2: Send a formal reminder (14 days)

Send a written reminder stating:

The amount owed and the period it covers
The lease clause requiring payment
A 14-day deadline to pay or respond
Contact details for queries

Keep this professional and factual. Many non-payments are simple oversights — people are busy, letters get lost, direct debits fail.

Use our free arrears letter generator to create templated chase letters at each stage.

Step 3: Send a formal arrears letter (30 days)

If the first reminder doesn't produce payment, send a formal arrears letter:

Restate the amount owed with any interest or late payment charges your lease permits
Reference the lease clause
Set a 30-day deadline
State that you will refer the matter to the First-tier Tribunal if payment is not received
Include a summary of the leaseholder's rights (right to challenge at the FTT, right to request a summary of costs)

Step 4: Consider the First-tier Tribunal (FTT)

The First-tier Tribunal (Property Chamber) determines whether service charges are reasonable and payable. Either party can apply — the landlord (RTM company) or the leaseholder.

Applying to the FTT has advantages over county court:

Lower cost — application fees are modest compared to court fees
No costs risk — the FTT rarely awards costs against either party, so losing doesn't mean paying the other side's legal fees
Specialist knowledge — tribunal members understand leasehold law

The FTT can determine that the charges are payable but cannot enforce payment directly. If the leaseholder still refuses to pay after a favourable determination, you need a county court judgment to enforce.

Step 5: County court action

For straightforward debts (the charges have been determined as payable, or the leaseholder hasn't challenged them), you can apply to the county court for a money judgment. For debts under £10,000, this is typically done through the small claims track.

Before issuing a claim, you must follow the applicable Pre-Action Protocol. For debt claims against individual leaseholders, check whether the Debt Claims Pre-Action Protocol applies — it typically requires a 30-day response period:

Send a letter of claim setting out the amount, how it's calculated, and what you want
Allow the response period specified in the applicable protocol (typically 30 days for debt claims) before proceeding
Consider mediation before proceeding

Costs to consider: Court fees, potential solicitor costs (though small claims can be handled without a solicitor), and the time involved in preparing the claim.

Step 6: Forfeiture (last resort)

Forfeiture — taking back the lease — is the nuclear option and is rarely used for service charge arrears alone. The conditions are strict: arrears must exceed £350 or have been outstanding for more than 3 years, and the amount must be agreed or determined by a court or tribunal.

In practice, the threat of forfeiture is more powerful than the action itself. Most leaseholders will pay when they understand the potential consequences.

What if the leaseholder disputes the charges?

A leaseholder has the right to challenge service charges at the FTT. Common grounds include:

Reasonableness — the charges are higher than market rate
Consultation failures — Section 20 wasn't followed for major works
Service standards — poor quality of services provided
Lease interpretation — disagreement about what the lease permits

If a leaseholder raises a genuine dispute, take it seriously. Document your response. If you can resolve it informally — by providing better information, correcting an error, or agreeing a payment plan — that's almost always better than tribunal proceedings.

Interest and late payment charges

Check your lease. Some leases allow interest on late payments (typically 2-4% above base rate). Some include a fixed late payment charge. If your lease doesn't specify interest or late charges, you generally cannot add them.

Even where the lease permits interest, applying it from day one can damage the relationship with a leaseholder who simply forgot. Consider starting interest only after a formal demand has gone unanswered for 30+ days.

Practical tips for volunteer directors

Keep meticulous records — every demand, reminder, and response, with dates. If you end up at the FTT, records are everything.
Don't delay — the 18-month rule starts from when costs are incurred, not when you notice the arrears.
Communicate early — a quick phone call or email after a missed payment prevents many formal disputes.
Offer payment plans — a leaseholder genuinely struggling financially is more likely to pay £100/month than a lump sum they can't afford.
Never threaten what you won't do — don't mention forfeiture unless you genuinely intend to pursue it. Empty threats damage credibility.
Get the block's details right — ensure unit numbers, names, and lease percentages are accurate before sending demands.

Sources

This guide is for general information only and does not constitute legal advice. If you are pursuing service charge arrears, consider seeking advice from a qualified solicitor or the Leasehold Advisory Service (LEASE).