Service Charges and Building Safety Costs: A Guide for RTM Directors

TL;DR: Service charges are the number one source of friction for Right to Manage companies -- accounting for 27% of all RTM-related enquiries to LEASE over the past five years. The Building Safety Act 2022 adds entirely new cost categories that RTM directors must now budget for, consult on, and explain to fellow leaseholders. This guide covers what you can legitimately charge, when Section 20 consultation applies, how to build a compliance budget, and how to communicate costs without triggering disputes.

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#Why Service Charges Matter More for RTM Companies

Service charges are the financial engine of every RTM company. Unlike a managing agent who sends invoices and moves on, RTM directors live in the building. You pay the same service charges you set. You answer questions from neighbours in the corridor, not through a complaints department.

This creates a unique dynamic: every pound you budget needs to be defensible to people who know where you live.

LEASE data shows that 27% of all RTM-related enquiries over the past five years concern service charges -- more than any other single topic, including the RTM claim process itself. The Building Safety Act has added a new layer of costs that many RTM companies have never budgeted for. Getting this right is both a legal obligation and a practical necessity for maintaining trust within your building community.

#What Building Safety Costs Can You Charge?

The BSA creates several categories of cost that are legitimate service charge items under the Landlord and Tenant Act 1985. As the Accountable Person for your higher-risk building, your RTM company is legally required to carry out these activities -- and the costs of doing so are recoverable through the service charge.

#Recurring annual costs

• Fire risk assessments -- annual FRA reviews for higher-risk buildings, plus action tracking and evidence collection. Expect 1,500-4,000 pounds per assessment depending on building complexity
• Safety case maintenance -- keeping your building safety case report current, including risk reviews and evidence updates
• Golden thread record-keeping -- maintaining the digital record of your building's design, construction, and ongoing safety management. Software, storage, and staff time
• Mandatory occurrence reporting -- systems and processes for reporting safety occurrences to the BSR within the required timeframes
• Building safety insurance -- professional indemnity and directors' liability insurance appropriate for BSA obligations
• Contractor competence verification -- checking that contractors working on fire safety and structural elements have the required competencies under the BSA

#One-off or periodic costs

• PEEPs surveys and plans -- personal emergency evacuation plans for residents who need them, including initial surveys and annual reviews
• BSR registration and assessment fees -- costs associated with building registration and the Building Assessment Certificate process
• Remediation works -- fire safety improvements, cladding remediation, compartmentation repairs, and other capital safety works
• Fire door replacement programmes -- systematic inspection and replacement of non-compliant fire doors
• Alarm and detection system upgrades -- bringing fire alarm systems up to current standards

Each of these costs should appear as a named line item in your service charge budget -- not buried in a generic "management" or "repairs" category.

#When Section 20 Consultation Applies

Before you commit to major safety works, you need to understand the Section 20 consultation requirements. The BSA does not override Section 20. If the cost of qualifying works exceeds 250 pounds per leaseholder, you must follow the three-stage consultation process under the Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements) Regulations 2003.

#The three-stage process

1. Notice of Intention -- inform leaseholders of the proposed works, explain why they are necessary, and invite observations. Allow 30 days for responses
2. Estimates and proposals -- obtain at least two estimates, share them with leaseholders, and invite further observations. Allow another 30 days
3. Notification of award -- explain why the chosen contractor was selected, particularly if not the cheapest

#Common RTM scenarios requiring Section 20

#What happens if you skip consultation?

If you carry out qualifying works without proper Section 20 consultation, you can only recover 250 pounds per leaseholder through the service charge -- regardless of the actual cost. For a 30-flat building where fire door replacement costs 60,000 pounds, skipping consultation means recovering 7,500 pounds instead of 60,000. The RTM company -- and by extension its leaseholder-directors -- absorbs the difference.

You can apply for dispensation from the First-tier Tribunal under section 20ZA, but this is not guaranteed. For BSA-related works, urgency and safety risk are factors the tribunal considers, but you must still demonstrate that leaseholders were not materially prejudiced by the lack of consultation.

#Building a BSA Compliance Budget

Most RTM companies budget annually. The BSA requires you to think in two timeframes: annual recurring costs and a multi-year reserve for capital safety works.

#Annual compliance budget template

For a 30-flat building, that annual compliance cost works out to roughly 170-570 pounds per leaseholder per year -- before any major remediation. This is new money that was not in your budget before the BSA.

#Reserve fund planning

Capital safety works -- cladding, fire doors, alarm systems, compartmentation -- can cost tens or hundreds of thousands of pounds. Start building a reserve fund now, even if no immediate works are planned.

Under the Landlord and Tenant Act 1985 (section 19), service charges must be "reasonable". Building a reserve over several years to avoid a single large demand is both reasonable and prudent. Include a named "Building Safety Reserve" line in your annual budget.

A practical approach: estimate the total cost of safety works likely to arise over the next five years, divide by five, and add that annual contribution to your service charge budget. Review and adjust each year as costs become clearer.

#The Building Safety Levy

The Building Safety Levy is a separate charge on developers -- not on building managers or leaseholders. It is established under Part 4 of the Building Safety Act 2022 and is expected to launch in October 2026.

While RTM companies do not pay the levy directly, it funds the Building Safety Fund, which finances remediation of historical fire safety defects. If your building has outstanding cladding or fire safety remediation needs, the levy's impact on remediation funding timelines may affect your planning.

The key point for RTM directors: the levy does not create a new service charge liability for your leaseholders, but remediation works funded by the Building Safety Fund may still require Section 20 consultation when costs flow through your service charge.

#Communicating Costs to Leaseholders

This is where RTM companies have a structural advantage -- and a structural risk. You are leaseholders too. You pay the same charges. That shared interest is your strongest argument for transparency.

#At the AGM

• Present BSA compliance as a named agenda item -- do not bury it under "any other business"
• Show the budget breakdown -- leaseholders accept costs they understand. A line-by-line budget is harder to dispute than a lump sum
• Explain the legal obligation -- reference the specific BSA sections that require each activity. This is not optional spending; it is a legal duty
• Acknowledge the cost impact -- do not minimise it. "This adds approximately X pounds per flat per year. Here is what it covers and why it is required by law."

#Handling pushback

The most common objection: "Why should we pay for this?"

Your answer has three parts:

1. Legal obligation -- the RTM company is the Accountable Person under the BSA. These obligations are not discretionary. Non-compliance carries criminal penalties of up to two years' imprisonment
2. Shared interest -- as directors and leaseholders, you are spending your own money alongside your neighbours. You have every incentive to keep costs reasonable
3. Risk reduction -- proper compliance reduces the risk of enforcement action, insurance voidance, and -- most importantly -- harm to residents

Document all cost communications. Keep records of AGM minutes, written notifications, and leaseholder responses. This forms part of your Golden Thread and demonstrates to the BSR that you are managing your building transparently.

#Insurance Implications

The BSA has changed the insurance landscape for higher-risk buildings. RTM companies need to verify several things:

• Building insurance covers BSA obligations -- confirm your policy does not exclude building safety compliance activities
• Directors' and officers' liability -- RTM directors should have D&O insurance that covers BSA-related decisions and potential enforcement action
• Professional indemnity -- if your RTM company employs or contracts a building safety manager, verify their professional indemnity coverage
• Premium impact -- buildings with documented BSA compliance (safety case, golden thread, up-to-date FRA) may attract lower premiums. Buildings without documentation face higher premiums or coverage exclusions

Review your insurance annually as part of the compliance budget cycle. Ask your broker specifically about BSA coverage -- many standard block policies have not yet caught up with the new regulatory requirements.

#Practical Next Steps

If you are an RTM treasurer or director responsible for finances, start here:

1. Audit your current service charge budget for BSA-related costs. If "building safety" does not appear as a named category, add it
2. List all BSA obligations your building is subject to -- registration, safety case, FRA, PEEPs, MOR, golden thread. Each has a cost
3. Get quotes for the activities you are not yet doing. Fire risk assessment firms and building safety consultants can provide indicative pricing
4. Check your Section 20 exposure -- identify any planned works that will exceed 250 pounds per leaseholder and build the 8-12 week consultation timeline into your project plan
5. Start a Building Safety Reserve fund -- even a modest annual contribution gives you options when major works arise
6. Review your insurance -- confirm BSA coverage and directors' liability protection
7. Present the compliance budget at your next AGM -- transparency now prevents disputes later
8. Document everything -- every cost decision, every leaseholder communication, every budget approval. Your Golden Thread includes financial records

#Related Reading

• RTM Companies and the Building Safety Act: Your Compliance Obligations -- the full breakdown of what RTM companies must do under the BSA
• Does Your RTM Company Need a Building Safety Director? -- when you need one, what they do, and what happens without one
• Section 20 Consultation and the Building Safety Act -- detailed guide to the consultation process for BSA-driven works
• Building Safety Costs and Leaseholder Charges -- the leaseholder perspective on BSA costs
• The Building Safety Levy: What Building Managers Need to Know -- how the developer levy affects remediation funding