Is the service charge limited to what is reasonable? Section 19, advance demands and a balancing credit, worked for twelve flats

A leaseholder queries the year-end figures: the work was done, the invoices exist, but is the bill too high? Or the budget was £3,000 a flat and the spend came in lower. What does the law say about both?

What the source says

I read section 19 of the Landlord and Tenant Act 1985 on legislation.gov.uk today. The page states it is up to date with changes known to be in force on or before 26 October 2026. In plain terms:

• Costs reasonably incurred (subsection 1). Relevant costs count towards a service charge only to the extent they are reasonably incurred. Where they relate to services or works, they count only if the services or works are of a reasonable standard. The amount payable is limited accordingly.
• Charges demanded in advance (subsection 2). If a service charge is payable before the relevant costs are incurred, no more than a reasonable amount is payable. After the costs are known, the necessary adjustment must be made by repayment, reduction or subsequent charges, or otherwise.
• Repealed parts. Subsections 2A to 2C and 3 were removed from 30 September 2003 in England, and subsection 4 from 1 September 1997. The page records them as repealed, so I ignored them.
• A pending change. The page lists the Renters' Rights Act 2024, section 53, as due to substitute words in subsections 1 and 2. I did not read what the new wording will be, so check the page before you rely on the exact text.

Section 19 does not say what a lease allows you to charge. It only caps what can be recovered under the lease. It also does not set a pound limit: "reasonable" is for a tribunal or court to decide on the facts.

Three year-end outcomes for twelve flats

Take a block of twelve flats, each paying an equal 1/12 share. The budget was £36,000, demanded in advance at £3,000 per flat. The numbers are invented.

Check each line twice:

• A: £36,000 - £31,440 = £4,560; £4,560 / 12 = £380. Each flat's real cost is £31,440 / 12 = £2,620, which is £3,000 - £380.
• B: £39,000 - £36,000 = £3,000; £3,000 / 12 = £250.
• C: £39,000 - £2,400 = £36,600; £36,600 - £36,000 = £600; £600 / 12 = £50.

Case C is the useful one. A £2,400 cost that a tribunal found unreasonable turns a £250 per-flat shortfall into £50. The invented £2,400 is only there to show the sum; I have no view on what a tribunal would decide on any real cost.

What to do about it

• Set the advance at a figure you can explain from last year's actuals plus known changes, and keep that working.
• At year end, calculate the balance flat by flat and show the credit or the shortfall in the accounts. Subsection 2 expects the adjustment, not a silent carry.
• Keep quotes, a record of why a contractor was chosen, and any inspection or sign-off for work. If a leaseholder challenges cost or standard, that is the evidence.
• A late demand for old costs has its own limit: see the 18-month rule worked on dates.
• Leaseholders can ask to see the paperwork: see the section 22 request reply template, and the year-end checklist.
• Large works have a separate consultation step: see the section 20 consultation threshold checker.

What I did not read

I did not read the lease, case law on what counts as reasonable, the Renters' Rights Act 2024 wording, or how a tribunal weighs cost against standard. The block, the budget, the costs and the shares are invented, and equal shares are an assumption: many leases use other percentages.

Overlyft builds AI staff who join your block management team and, at year end, compare each flat's advance with the actual costs, work out every credit and shortfall, and draft the covering letters. A property manager checks and approves each figure before it goes out.

This is general information, not legal advice. Check the legislation and your leases, and take advice on a particular dispute.