Charges can go up or down without any limit, but the landlord can only recover those costs which are reasonable. Leaseholders have rights to challenge service charges they feel are unreasonable at the Leasehold Valuation Tribunal (LVT).

When considering the purchase of a leasehold flat, it is important to find out, for personal budgetary purposes, what the current and future service charges are likely to be.

Many leases provide for the landlord to collect sums in advance to create one or more reserve or 'sinking' funds. The purposes of such funds are to build up a sum of money to cover the cost of irregular and expensive works such as external decorations or lift replacement.

There are usually two reasons for maintaining such a fund. The first is to ensure that all occupiers contribute to major works, not just those who are in occupation at the time they are carried out. The second is to even out the annual charges and to assist with leaseholders' budgeting.

Leases sometimes say how much is to be contributed each year, but usually they do not and it is left to the landlord to determine the contributions. Best practice is to calculate the contributions by reference to budget costs for the works covered by the funds and the periods before the works are to be undertaken.

Reserve funds should earn interest, which goes some way to meet increasing budget costs.

Contributions to the reserve fund are generally not repayable when a flat is sold, but may be if the lease so provides.

It is important to understand that the landlord's power to levy a service charge and a leaseholder's obligation to pay it are governed by the provisions of the lease. The lease is a contract between the leaseholder and the landlord and there is no obligation to pay anything other than what is provided for in the lease.

The lease may contain specific terms obliging the landlord to carry out certain works or provide certain services and, if a service charge is to be payable, the lease must contain a power for the landlord to recover the cost of those works or services from the leaseholder. It must specify whether the charge is recoverable in advance or in arrears of the provision of works or services and whether it is to be collected on a regular basis, perhaps annually or on a specified quarter-day, or whether it is to be levied as costs arise. It may be very specific in its wording, setting out quite precisely the works or services to be chargeable; alternatively the clauses may be very general, simply referring to costs of the repair and maintenance of the structure of building.

It can generally be assumed that a service charge will be payable and will cover the repair and maintenance of the fabric of the building and the fittings, the lift or the boilers etc, as well as cleaning, lighting and maintenance of common areas. Other obligations depend on the scope of services provided. In some cases this is done simply by referring to the landlord's costs in meeting his obligations, as set out in one of the schedules to the lease.