A leaseholder who moved into their flat in February 2026 is now facing a service charge of £2,500 per year, with the added concern of the freeholder planning to sell their interest in the property at auction. The situation highlights common challenges faced by leaseholders, including rising costs and potential changes in property ownership.
According to reports, the management company had been overpaying service charges since 2023. Although the accumulated overpayments have now been refunded, the management company has not provided an explanation for the error or the lack of notification to residents. Despite the consistent overpayments, the service charge increased annually.
Further complicating matters, the management company admitted to agreeing to a minimum annual management fee of £3,600 for the block of four flats, with additional fees bringing the total to nearly £10,000. This equates to approximately £2,500 per leaseholder annually. The management company asserts no obligation to inform leaseholders of this arrangement.
Leasehold property ownership means a leaseholder has the right to occupy a property for a set period but does not own the land it is built on. The freeholder owns the building and the land. Leaseholders are typically responsible for ground rent and service charges, which cover repairs and maintenance of shared areas.
In England and Wales, the average service charge for flat leaseholders was £2,405 in 2025, a 4.6% increase from the previous year. Over the past five years, average service charges have risen by more than 30%, outpacing inflation. In the decade prior, this figure was a 55.6% increase.
The freeholder has served a Section 5B notice, indicating a plan to sell their interest in the property, likely at auction. Leaseholders have a legal right of first refusal, meaning they can match the winning auction bid to acquire the freehold. If this endeavor is unsuccessful, leaseholders may pursue the 'Right to Manage' (RTM) route. RTM allows leaseholders to take control of their building's management without purchasing the freehold outright or needing the landlord's consent.
Experts advise leaseholders to first review their lease agreement to understand how service charges are calculated and what provisions exist for surpluses. While a surplus may be credited against future charges rather than refunded immediately, consistent surpluses alongside rising demands warrant an inquiry into budget calculations. Leaseholders are encouraged to request service charge accounts and breakdowns, and to scrutinize management agreements. If charges appear unreasonable or not payable under the lease, they can be challenged in the First-tier Tribunal.
The Section 5B notice requires swift action, as leaseholders have a limited timeframe, typically two months, to accept the offer and nominate a purchaser. Buying the freehold would grant leaseholders more control but also the responsibilities of managing the building, including accounting for income from any commercial spaces, such as the ground-floor yoga studio.
Simultaneously pursuing the RTM process can offer an alternative path to management control. Experts recommend leaseholders consult with their neighbors to gauge interest and seek specialist legal and valuation advice promptly due to strict deadlines.