FAQ
Who Pays the Service Charge When I Sell My Flat?
You pay the service charge up to the day you complete, and the buyer pays from then on. That one rule answers most of the question. The rest is detail: what happens to a quarter you have already paid, how arrears are cleared, who covers the year-end balancing charge that arrives after you have gone, what a section 20 bill does to the sale and why you never get your reserve fund back. This page sets it all out in order.
The Short Answer
Service charges confuse more sellers than almost anything else in a flat sale. The reason is that several things are settled at once on completion day. The buyer may owe you for a period you have already paid. You may owe arrears. And some of your money may be held back for a bill that has not arrived yet. All three can appear on the same completion statement. Each one is simple on its own, and the sections below take them in the order they come up.
The same rules apply whether you sell through an estate agent, at auction or to a cash buying company like us. The solicitors do the arithmetic, but it helps to understand it, because the figures on the completion statement are the last chance to query anything. Our guides to service charges and completion day cover the wider picture, and gov.uk has a short overview of service charges for leaseholders. This page is general information, not legal advice; your lease and your contract decide the detail.
How Responsibility Passes on Completion Day
Your obligations under the lease run up to and including the day of completion. From the next day the buyer is the leaseholder, and every demand from then on is theirs. There is no period of shared responsibility and nothing for you to pay after the sale, apart from settling up for your own time in the flat.
That settling up happens once, on the completion statement. Shortly before completion your solicitor asks the managing agent for a statement of account showing what has been demanded, what has been paid and what period the current charge covers. The two solicitors then work out who owes whom for the current period, and the result appears as a single adjustment to the money changing hands. Solicitors call this apportionment. It is a one-off correction, not an ongoing arrangement.
Ground rent is dealt with in exactly the same way and usually on the same line of the statement. Buildings insurance, where it is collected through the service charge, follows the service charge. Where the freeholder bills it separately, it is apportioned separately.
If You Have Paid the Service Charge in Advance
Most leases demand the service charge in advance, quarterly or half-yearly, against an estimate of the year's costs. If you complete part-way through a period you have already paid for, the buyer repays you the unused part. Take a flat with a service charge of £2,400 a year, demanded half-yearly, where you have paid £1,200 for the six months from 1 January and complete on 1 March. You have used two months and the buyer will use four, so the buyer adds four sixths of £1,200, which is £800, to the money they pay you.
If the position is the other way round, with a demand due but not yet paid, your share up to completion is deducted from your proceeds instead. Either way the figure is agreed between the solicitors from the managing agent's statement, and you should see it set out on the completion statement with the dates and the daily rate. Check the dates against the demand, because an agent's statement that shows the wrong period start is the commonest small error.
One point sellers sometimes miss: the adjustment is based on the amount demanded, not on what the year eventually costs. If the estimate turns out to be too low, the shortfall is dealt with through the year-end balancing charge described below, not by reopening the apportionment.
If You Are in Arrears
Arrears are paid out of your sale money on the day. Your solicitor pays the managing agent from the completion funds before sending you the balance, and gives the buyer's solicitor a written promise to do so, called an undertaking. The managing agent then confirms the account is clear and registers the buyer as the new leaseholder. If the sale will leave you with enough after the mortgage is repaid, this is routine and needs nothing from you except honesty about the figure at the start.
Where arrears are large, they can hold things up earlier. Managing agents will usually issue the management pack with a small balance outstanding, but many withhold it until a significant sum is cleared, and without the pack the buyer's solicitor cannot progress. Interest, administration charges and the freeholder's legal costs are often added to the statement; whether they are recoverable depends on your lease, so have your solicitor query heavy add-ons before completion rather than pay and argue afterwards.
Where the arrears are more than the equity, the sale needs a plan agreed with the freeholder and any lender before exchange. Our guide to selling with service charge arrears or a dispute covers that situation and what to do if you are disputing the charge rather than simply behind with it.
The Year-End Balancing Charge, and Why Money Is Held Back
Service charges are collected against an estimate, and once the year's accounts are finalised the managing agent sends either a balancing charge, if the year cost more, or a credit, if it cost less. That reconciliation often arrives six months to a year after the year ends, which means it can land long after you have sold. Your share of any shortfall for the months you owned the flat is still yours to pay.
The usual way of handling this is a retention. The buyer's solicitor asks for a sum to be held back from your proceeds by one of the solicitors, released to the managing agent or back to you once the accounts are settled. A few hundred pounds is typical for an ordinary block. More is reasonable where major works are in progress or the last accounts showed a large deficit. The contract may instead provide for a provisional apportionment now and a true-up between you and the buyer when the figures are known, which comes to the same thing with more paperwork.
Two things to agree before exchange: the amount, which should be based on the managing agent's own estimate or the last year's figures rather than a round number, and the release terms, so the money does not sit in a client account indefinitely. If the accounts come in under budget, the credit for your period is yours, and the retention should come back to you in full.
Major Works and Section 20 Bills
A large one-off bill for a new roof, lift, windows or external decoration is where "who pays" gets contested. The legal answer is that the person who is the leaseholder when the demand is issued pays it. The practical answer is that the buyer will not accept that. If a section 20 notice has been served, works are under way or a bill is known to be coming, the buyer will expect to pay less by the full amount, on the basis that the works only bring the building up to normal condition. Sellers' solicitors sometimes argue that the buyer benefits from the works and should share the cost. In our experience that argument rarely succeeds.
Timing decides how painful this is. Disclose a known bill before the offer and it becomes part of the negotiation, priced in once. Let it surface in the management pack during conveyancing and the buyer will either demand the full amount off the price or walk away, and some first-time buyers walk away simply because the idea of a major works bill frightens them. Where a bill is coming but the final figure is not yet known, a retention sized to the managing agent's estimate is the usual compromise.
Ask the managing agent directly, before you go to market, whether any works are planned in the next two years, and read the last two years' accounts for signs of a programme. Our guides to selling with major works planned and section 20 notices go through the consultation process and how to present a bill to buyers.
The Reserve Fund Stays With the Building
Many leases include a contribution to a reserve or sinking fund in the service charge, building up money for future large costs. That money belongs to the fund, held on trust for the leaseholders as a body, and it does not come back to you when you sell. The buyer does not pay you for your share either, however many years you contributed. This surprises sellers who have paid in for a decade, but it is how the fund works for everyone: the person who owns the flat when the roof is replaced benefits from contributions made by everyone before them.
What a healthy reserve fund does do is help the sale. Buyers and their solicitors read the balance in the management pack as a sign that the building is well run and that the next big bill is provided for. If your block has a strong reserve, make sure the figure is in the pack and that the agent mentions it. A low or empty reserve is one of the reasons a first-time buyer's solicitor raises the possibility of future bills, and it is worth having an answer ready, such as a planned maintenance schedule or recent accounts showing the fund being rebuilt.
Our guide to reserve and sinking funds explains the difference between the two terms, where the money is held and whether contributions can be challenged.
Ground Rent and the Freeholder's Fees
Ground rent follows the same rule as the service charge: yours to completion, the buyer's from then on, apportioned once on the completion statement. Where ground rent is paid annually in advance the buyer repays your unused months; where it is in arrears your share is deducted. Any ground rent arrears must be cleared on completion in the same way as service charge arrears, and a freeholder will chase them just as hard. Our guide to ground rent covers the rest.
The freeholder's own fees around the sale are set by the lease and by custom rather than by law, and your solicitor should confirm who pays what before exchange. The pattern on most sales is this: you pay for the management pack, typically £300 to £400 plus VAT and sometimes more; the buyer pays the notice of transfer fee for registering as the new leaseholder, typically £50 to £300 plus VAT, and any deed of covenant or certificate of compliance fee the lease requires. Where the freeholder charges for consent to the sale itself, which some leases require, that is normally the seller's cost. Our guide to the notice of transfer explains what the buyer's solicitor sends and why.
What to Gather Before You Sell
Most delays over service charges come from missing paperwork rather than money. The buyer's solicitor will want, and the management pack should contain, the last three years' service charge accounts, the current year's budget and demand, a statement showing your payments are up to date, the reserve fund balance, any section 20 notices served or planned, and the buildings insurance schedule. Find your own copies before you go to market so you can check the pack against them when it arrives.
Order the pack at the right time rather than the earliest time. It has a shelf life of around three to six months, after which a buyer's solicitor or lender will want it updated at further cost. On a flat likely to sell quickly, ordering as you go to market works; otherwise wait until an offer is agreed. The pack is built around the LPE1 form, and our guide to the LPE1 explains what each section covers and where the answers come from.
Anything that will worry a buyer, such as a planned bill, a dispute or a low reserve, is better raised before the offer than announced by the pack. A buyer who learns something early negotiates. A buyer who learns it late renegotiates, or leaves.
Selling to a Cash Buying Company: The Same Rules
Nothing about the service charge changes when the buyer is a company like us rather than an individual. You pay to completion, we pay from then on, prepaid charges are apportioned, arrears come out of your proceeds and a retention may be agreed for the year-end balance. The management pack is still needed, because our solicitor reads it as carefully as anyone's.
The difference is in how problems are treated. Arrears, a looming section 20 bill, a dispute with the managing agent or a thin reserve fund are things we deal with every week, so they are priced into the offer rather than treated as reasons to withdraw, and a completion date can be set to suit the state of the account. Where arrears are large, we can often agree a structure with the freeholder that an individual buyer's lender would not accept. Our cash buyer Top 10 covers how the route works, and the How It Works page sets out the steps.
Related Reading
For what service charges can cover and how to challenge one, see the service charges guide. For arrears and disputes on a sale, see the arrears guide. For what happens on the day, see the completion day guide.
Further FAQs
No. Arrears you built up are yours, and they are paid out of your sale money on completion before the balance reaches you. The buyer's solicitor insists on this because the freeholder's remedies attach to the flat: a freeholder can withhold the certificate of compliance that HM Land Registry needs, refuse consent to the sale where the lease requires it, or in the worst case threaten forfeiture while an account is in arrears, whoever ran them up. So the buyer will not complete until the account is clear or a firm arrangement is in place. Our guide to selling with service charge arrears covers what happens when the arrears are larger than the equity.
No. Money you have paid into the reserve or sinking fund belongs to the fund, held on trust for the building, and it stays there when you sell. You cannot take it with you and the buyer does not pay you for it on completion. What you can do is make it work for the sale: a healthy reserve fund reassures buyers that the next big bill is already provided for, so make sure the balance is in the management pack and mention it in the marketing. Our guide to reserve and sinking funds explains how they work.
Yes, but the dispute has to be dealt with rather than left. The buyer's solicitor will see the disputed sum on the statement of account and will not let the buyer inherit the argument. The usual solutions are to pay under protest and pursue the challenge afterwards, or to agree a retention equal to the disputed sum that is held by one of the solicitors until the dispute is resolved. Which is better depends on the amount and how strong your case is. Withholding payment and hoping the sale carries on regardless is the one approach that does not work.
You do, as the seller, in almost every sale, and your solicitor orders it. There is no legal cap on the fee today. The Leasehold and Freehold Reform Act 2024 provides for a capped fee and a fixed deadline for the pack, but neither is in force yet, so until then the figure is whatever the freeholder or managing agent charges. The section on what to gather covers when to order it.
The buyer pays the fees that come with becoming the leaseholder: the notice of transfer, and any deed of covenant or certificate of compliance the lease requires. You pay for the management pack and, where the lease requires the freeholder's consent to the sale, for that consent. Arrears and any retention come from your side. The ground rent and fees section gives the usual figures. Nothing in law fixes this split, so ask your solicitor to confirm it before exchange.
Ask what it is for and whether the figure is evidenced. A retention should relate to a real liability for your period of ownership that cannot yet be quantified: a year-end balancing charge, a section 20 bill where the final cost is not yet known, or a disputed sum. A few hundred pounds against a normal year-end reconciliation is routine. Several thousand needs a reason, such as major works under way, and the figure should come from the managing agent's estimate rather than a guess. Agree in writing how long the money will be held and what triggers its release, because an open-ended retention can sit unclaimed for a long time.