Leasehold glossary

What are on-account service charge payments?

On-account payments are the advance service charge instalments — commonly one or two a year — that leaseholders make based on an estimated annual budget, before the actual costs are known. Section 19(2) of the Landlord and Tenant Act 1985 limits these advance payments to a reasonable amount, reconciled at year end against actual spend.

Almost every leasehold service charge is collected in advance. Rather than wait until money has been spent, the landlord or managing agent sets an estimated budget for the coming year and asks each leaseholder to pay their share up front — usually in one or two instalments. Those advance instalments are the "on-account" payments. Because they are based on a forecast, they are always provisional: the real figures are not known until the year is over.

The statutory limit on advance payments

Good to know: under Section 19(2) of the Landlord and Tenant Act 1985, where a service charge is payable before the relevant costs are incurred, "no greater amount than is reasonable" is payable in advance. That means an on-account demand can be challenged if the estimate is inflated — you do not have to wait for the year to end to question it.

The same subsection provides that once the costs have actually been incurred, "any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise." In other words, the estimate is not the final word — it must be trued up against reality.

How on-account payments are reconciled

At the end of the service charge year the actual costs are totalled in the year-end accounts and compared with what you paid on account. That reconciliation produces one of two outcomes:

  • A balancing charge — if actual costs exceeded the estimate, you are billed for the shortfall.
  • A credit or refund — if actual costs came in under the estimate, the surplus is yours, usually credited against the following year.

So the on-account payment and the balancing charge are two halves of the same cycle: you pay an estimate up front, then settle up when the actual figures land.

What to check on an on-account demand

  • Is the estimate reasonable? Compare it with last year's actual accounts and with the previous budget — a large, unexplained jump is worth questioning under Section 19(2).
  • Does the lease allow advance payments? The right to collect on account comes from your lease as well as the statute; check the lease permits it and how instalments are split.
  • Is a reserve-fund contribution bundled in? Money for future major works is often collected on account too, via a reserve fund.
  • Were last year's actuals reconciled? Make sure any surplus you were owed has been credited before you pay the next estimate.

How this shows up in your service charges

An on-account demand is the bill most leaseholders actually pay — and the estimate behind it is easy to challenge when it is padded. Our free AI audit compares your on-account demand against the prior year's actual accounts and flags whether the advance charge looks reasonable under Section 19(2) of the Landlord and Tenant Act 1985.

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