A question we are asked regularly by RTM boards: can we increase the service-charge budget, add a reserve fund contribution, or issue a revised demand part way through the year?
Yes. Setting and revising the annual service charge budget is part of the management function an RTM company takes on, and adjusting it year to year is normal. The limits come from the lease and statute rather than from the board's discretion. The lease determines the heads of expenditure, apportionments, accounting year, whether advance payments and reserve fund contributions are permitted, and whether mid-year revised demands are possible. Section 19 of the Landlord and Tenant Act 1985 requires estimated charges to be reasonable. Budgeting for major works does not replace section 20 consultation where the statutory thresholds are exceeded.
Preparing and setting the annual service charge budget is part of the management the RTM company takes on. Where the lease provides for advance payments based on an estimate, the company estimates the expenditure for the coming year, applies the lease apportionments and demands accordingly. Adjusting the budget from one year to the next is normal and expected: costs move, insurance premiums rise, and deferred maintenance eventually has to be funded.
So the answer to "can we change it" is yes. The more useful question is what the lease actually permits, because that is where budget decisions succeed or fail.
The lease decides:
A budget that steps outside those provisions is vulnerable however carefully it was prepared. The most common failures are collecting reserve fund contributions where the lease does not allow them, and re-apportioning charges on a basis the board considers fairer than the one in the lease.
Section 19 of the Landlord and Tenant Act 1985 limits recovery to costs reasonably incurred, and estimated charges are recoverable only so far as they are reasonable. A board is therefore not free to set an arbitrarily high figure just to build a comfortable balance.
Reasonable, though, does not mean low. A budget that is deliberately kept flat to avoid difficult conversations produces year-end deficits, emergency demands and deferred repairs, which is a worse outcome for everyone. The defensible budget is the one built from actual costs, contract renewals, known compliance requirements and a considered maintenance plan, and then explained.
Including major works in a budget does not satisfy consultation. Where qualifying works exceed the statutory threshold of £250 per contributing leaseholder, or a qualifying long-term agreement exceeds £100 per leaseholder per year, section 20 consultation is required regardless of what the budget says. Nor can a project be split into smaller packages to keep each one under the threshold.
Whether the company can issue a revised or supplemental demand part way through the year depends on the lease. Some leases expressly allow interim adjustments; many do not, and in those cases the shortfall is dealt with in the year-end balancing charge instead. Boards facing an unexpected cost should check that provision before promising residents either that a further demand is coming or that it is not.
Section 20B is also relevant when costs run ahead of demands: costs incurred more than eighteen months before they are demanded may not be recoverable unless the leaseholders were told in writing within that period that the costs had been incurred and would be charged.
Build it from evidence, not from last year plus a percentage. Show the comparison against the previous budget and actual spend. Explain the material movements in plain language before the demands land. Consult residents informally on discretionary items even where there is no legal obligation to. Take the decision at a properly constituted board meeting and minute it. And publish the year-end position honestly, including where the budget was wrong, because credibility next year depends on it. Directors who would rather not build the budget themselves can see how we approach it as part of our block management service in Romford and across East London and Essex.
Budgets are the directors' decision, but the modelling and consultation behind them can be delegated. That is part of our professional management for RTM companies.
What a budget change means in practice depends on whether you set it or pay it.
Collecting a reserve fund the lease does not permit
However prudent it looks, a contribution outside the lease is open to challenge on payability.
Re-apportioning to a fairer split
Apportionment follows the lease. Changing it usually requires variation, not a board decision.
Budgeting for major works instead of consulting
Section 20 is triggered by the works themselves; a budget line does not satisfy the consultation requirements.
Keeping the budget flat to avoid complaints
Suppressed budgets produce deficits, emergency demands and deferred maintenance, which cost more overall.
Most questions on this topic are management questions rather than legal ones, and the two are worth separating. A managing agent can tell you how something works day to day and what it will cost. A solicitor tells you what your rights are and how a Tribunal is likely to view them.
East Valley Properties provides management expertise, not legal advice. Where a matter turns on the wording of your lease or on formal proceedings, we will say so and work alongside your solicitor.
The official material behind this guide. We summarise it in plain English rather than reproducing it.
Limits recovery to costs reasonably incurred, including estimated charges.
Consultation requirements for qualifying works and long-term agreements.
The eighteen-month rule on demanding costs already incurred.
Plain English guidance on budgets, demands and challenges.
Clear budgets, designated client accounts and year-end accounts leaseholders can actually follow. We can review your current arrangement at no cost.
Answered by Romain Maillard - Director, East Valley Properties
Romain manages residential blocks and estates for RTM companies, residents' management companies, share of freehold developments and freeholders across East London and Essex.
Published · Updated
This answer has been anonymised. Personal details, addresses and company names have been removed. Guidance is general and does not replace advice from a solicitor or surveyor on your specific block. East Valley Properties is a managing agent, not a firm of solicitors or legal advisers.
Whether you're an RTM Director, RMC Director, Freeholder or Leaseholder, our experienced block management team is here to help.
If your question could help other property owners, we may publish an anonymised version of the answer in our Knowledge Centre.
Book a free consultation with East Valley Properties to discuss your building, service charges, compliance or managing agent requirements.