Running a right to manage company
Service charges and accounts
The right to manage company will need to manage the building using funds from leaseholders, which will come from issuing service charge demands.
You can charge for services from the date the company takes over management. It’s important to prepare a budget and the first service charge demands before the handover date.
The landlord remains responsible for collecting any arrears from before the right to manage company took over.
Any ground rent will continue to go to the landlord, not the right to manage company.
Bank accounts
The right to manage company will be responsible for collecting service charges and holding them on trust for leaseholders, in a specific bank account. This protects them in case the company becomes insolvent.
This is not a regular business account and you may need to speak to a branch manager to arrange opening one.
If you’re using a managing agent, they will have a client account already and can set you up with a service charge account for the building.
The right to manage company may also want to have its own bank account for expenditure such as set-up costs, holding meetings and administration.
Company expenditure
Expenditure for things like directors’ and officers’ insurance, administration, postage and room hire are costs that you can claim from the service charge if the company has no other income and the leases allow this.
Some right to manage companies manage consents and providing information themselves, and can charge fees for this. These funds would be income for the company which it can spend as it wants, subject to the articles of association and agreement from members.
You cannot use service charge funds to make any payments to directors, except for reimbursing their expenses from managing the building.
Plans and budgets
You need to create a budget showing what you expect to spend for the year ahead. The budget should be based on the previous year’s expenditure and expected costs for the next year, with an allowance for inflation.
For larger buildings you also need a planned maintenance programme. It’s best to get professional help for this.
The maintenance programme should cover 10 to 25 years, depending on the building, so that it includes all the parts of the building that need to be renewed over time.
It should include budget costs (including fees and VAT), so that both routine and irregular costs can be properly programmed to spread expenditure. This will show how much needs to be collected for the reserve fund.
The service charge year and accounts cycle
The leases of the flats in the block should give details of the financial year used for that building. Often the year runs from either 1 April to 31 March, or 1 January to 31 December.
In older leases the year may run from one of the quarter days (25 March, 24 June, 29 September or 25 December). For example it could run from 25 March to 24 March the next year.
Service charge demands
The right to manage company or managing agent will need to issue service charge demands based on the budget.
Service charges are usually billed in advance in 2 equal payments, based on estimated costs for the next year. They might include a contribution to a reserve fund, which will vary depending on plans for major expenditure in the future.
Service charge demands must be in line with the terms of the lease. They must meet certain requirements to be valid.
Year end accounts and balancing charges
At the end of the financial year, the right to manage company or managing agent will need to calculate actual expenditure for the year and prepare accounts. The accounts must be prepared within 6 months of the end of the accounting year.
If the actual expenditure was more than the budget, the leaseholders will need to pay an extra amount to cover the shortfall (a balancing charge). This must be demanded within 18 months of when the costs were incurred, unless the right to manage company or agent sends a notice within 18 months telling leaseholders about the costs, called a Section 20B notice.
If the actual expenditure was less than the budget, the lease will say whether the unspent amount should be refunded to leaseholders, or credited to the service charge account.
Example service charge demand and budget - Show Contents Hide Contents
Marsham Towers is a block of 10 leasehold flats. Each flat pays a service charge contribution of 10%. The financial year runs from 1 January to 31 December.
The right to manage company has budgeted costs of £9,000 for 2025, with a total reserve fund contribution of £1,000.
The service charge for each flat is 10% of £9,000 + £1,000, which is £1,000.
This is payable in 2 equal parts: £500 on 1 January and £500 on 1 July.
Example service charge demand
Flat 1
Invoice for period 01/01/25 to 30/06/25:
Service charge on account £450
Reserve fund £50
Total £500
Example budget
Marsham Towers
Budgeted expenditure for 2025
- Management fee £2,500
- Insurance £1,000
- Cleaning £1,000
- Gardening £1,000
- General repairs £1,000
- Sundries £500
- Accounting £500
- Legal costs £500
- Gas £500
- Electricity £500
Reserve fund £1,000
Total expenditure £10,000
Example balancing charge
If the right to manage company overspends by £500 in 2025 because there was an unexpected roof leak, they will need to demand an extra £50 from each leaseholder at the end of the financial year.
More information
Introductory courses on budgets and accounting for service charges are available from The Property Institute (TPI).
- Last updated:
- 16 December 2025
- Next review:
- 16 December 2027
Related content
Step-by-step guide to setting up the right to manage and taking over management
Advice guideAbout service charges, how to challenge them, and what happens if you do not pay
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