Preparing service charge budgets and managing a block of flats can take a lot of time and effort. What would you do if a leaseholder then turned around and said they never signed a lease agreement?

In these days of online processing, conveyancing can become a conveyor belt with little human contact, which could lead to an unsigned document going unnoticed. Home movers may also be more focussed on getting than reading the small print, meaning they could sign a document without knowing exactly what it included. However, landlords/freeholders and leaseholders should both be aware of the obligations they are agreeing to.

Will a leaseholder have a hard copy of a document that they have signed?

When a lease is first granted, two identical documents are prepared — the lease and the counterpart lease. The lease is signed by the lessee and the counterpart is signed by the landlord/freeholder. Each gets the copy that the other party has signed.

Sometimes the landlord’s/freeholder’s solicitors will retain the counterpart leases and freehold title deeds for safekeeping. Alternatively, if a management company owns the freehold, it may retain these documents.

The value of a welcome pack for new leaseholders

The conveyancer should have gone through all the terms and conditions, but there is no guarantee that has happened, and the leaseholder may be unaware of signing up to the obligations they now have.

That’s why a welcome pack for new leaseholders can be a good idea, as you can manage their expectations while clarifying their obligations. With the disclaimer that it is only a summary, it can be a good way to list specific building covenants and rules, including when service charge budgets are produced, when bills are issued, and when payment is due.

You can also remind them what they get in return. For example, property insurance, safety inspections and compliance, window cleaning, maintenance, and contributions to a sinking fund.

What if a leaseholder says they haven’t seen the lease?

A copy of the lease should have been given to them by their solicitor when they bought the flat. As managing agent, you will probably hold a copy of the building lease and can offer a copy, with or without an administration charge. Alternatively, they can obtain a copy form the Land Registry.

What if a leaseholder feels you’ve overspent and doesn’t want to pay?

What is covered by service charges varies from lease to lease. The wording may state: ‘pay the lessor a fair and reasonable proportion of the costs and expenses incurred by the lessor in the performance of the lessor’s covenants herein contained…’

That is a bit open-ended, but essentially, as long as your charges are reasonable and you have the receipts/quotes to prove it, then you would not be going against the signed terms with the charges you are requesting.

What if a leaseholder won’t or can’t pay service charges?

Such a scenario can be difficult to deal with. Where ‘can’t pay’ is typically due to financial difficulties, you may allow flexibility and agree to a payment plan that can suit you both and the needs of the block.

If the leaseholder refuses to pay, following the law on service charge demands is vital. Service charge demands must be accompanied by a summary of your rights and obligations. As this summary is quite wordy, if you did provide a lease summary in a welcome pack, you could also include that along with your request for service charge payment. Reminding leaseholders of their obligations, along with the benefits for them and the rest of the block, may help.

Blocks of Flats Insurance from Gallagher

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The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.