Funding major works in a block: how to phase leaseholder demands and account for the project
To fund major works in a block, run the section 20 consultation first and draw on any reserve fund your lease allows. Then demand the balance in stages that match the lease and the building contract. Keep the money in a separate trust account and track every pound against the project budget. Get this right and leaseholders see predictable bills while your service charge accounts reconcile. Skip the consultation and you may be unable to recover more than £250 per leaseholder.
The funding plan and the accounting are really one job. A demand schedule that looks sensible on paper can still fail if the lease doesn’t support it or the money sits in the wrong account. This guide covers the order of play, a worked example and the 2027 changes that will tighten how the project gets reported.
Where major works funding comes from
You normally fund major works from 2 places: the reserve fund (if your lease provides for one) and service charge demands on leaseholders for the balance. The lease decides what you can demand and when. Every route sits behind the section 20 consultation if any leaseholder will pay more than £250.
A reserve fund only works if the lease allows it. LEASE, the government-funded Leasehold Advisory Service, notes that landlords can only collect reserve payments where the lease specifically permits it. Even then, the fund may fall short of the full cost, and leaseholders can be asked to make up the difference through the service charge.
These are the usual funding sources:
- Reserve Or Sinking Fund Held On Trust
- Interim Service Charge Demands Within The Lease Terms
- Staged Demands Linked To Contract Milestones
- Borrowing Where The Lease Allows And The Cost Is Reasonable
- Voluntary Payment Plans For Leaseholders Who Struggle
Borrowing deserves a warning. Parliament was told some years ago that freeholders sometimes borrow to fund works and pass the cost on through the service charge. That only works where the lease supports it, and the charge must still be reasonable.
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When section 20 consultation is required
Section 20 of the Landlord and Tenant Act 1985 requires you to consult leaseholders before carrying out qualifying works if any one leaseholder’s share will exceed £250, including VAT. Without consultation or a tribunal dispensation, you can recover no more than £250 per leaseholder, whatever the works actually cost.
The threshold is measured per leaseholder, not on the total bill. A 12-flat block with a £180,000 roof project is nowhere near borderline. Residents’ management companies and right to manage companies count as the landlord for this purpose, so the duty applies to them too.
Two stages with 30 days each means at least 60 days. Allowing for specification and tendering, the whole process often takes 3 to 6 months from first notice to contract award, so build that into your timetable.
There are a few traps. A reserve fund does not remove the duty to consult. If the money is already in the pot, you still have to go through the process. Professional services such as surveys are not qualifying works, so the surveyor’s appointment doesn’t trigger consultation by itself, but the works that follow do. The LEASE guidance on section 20 consultation sets out the stages in more detail.
If an emergency stops you consulting, you can apply to the First-tier Tribunal under section 20ZA for dispensation. The tribunal focuses on whether leaseholders suffered real prejudice from the failure, following the Supreme Court decision in Daejan v Benson.
The government has floated raising the thresholds to £600 for works and £300 a year for long-term agreements. That has not been confirmed in law, so £250 and £100 still apply, and a separate government response on reforming the section 20 process is still to come.
Can you phase major works demands?
Yes, if your lease allows interim or on-account demands. Phasing means spreading the balance across several demands tied to the contract programme or across 2 service charge years. The amounts have to be reasonable, and each demand must follow the lease and the statutory paperwork.
Take a 12-flat block with equal shares and a £180,000 project, including fees and VAT. That’s £15,000 per flat.
| Project cost | Number of flats | Equal share per flat |
|---|---|---|
| £180,000, including fees and VAT | 12 | £15,000 |
This is an illustration, not a template. Your lease may require equal instalments, set specific demand dates or allow a single demand only. The structure should come from the lease first and the cash flow second.
Some points to check before you issue demands:
- Reasonableness. Leaseholders can challenge reserve and interim demands at a tribunal in the same way as other service charge items, so keep the evidence behind each figure.
- Budget reissues. If you revise a budget mid-year to include a major works provision, issue fresh demands that match the lease. Tribunals have dealt with disputes where landlords re-issued demands to top up the reserve and the lease did not support it.
- Summary of rights. A demand must be accompanied by the prescribed summary of leaseholders’ rights and obligations under section 21B, and a leaseholder can withhold payment if it is missing.
- The 18-month rule. Under section 20B, costs incurred more than 18 months before the demand cannot be recovered unless you notified the leaseholder in writing within that period. Costs may not count as incurred until they are paid, so check the timing carefully.
A rolling 5 to 10 year schedule of works makes all of this easier because you can set the reserve contribution early and avoid a shock. Our guide to service charge accounting covers setting up the budget and collection side.
Keeping major works money and accounts separate
Hold the money on trust in a designated account, track the project in its own ledger against budget, show reserve movements separately and reconcile to the lease at year end. Service charge contributions are held on trust for leaseholders under section 42 of the Landlord and Tenant Act 1987, and section 42A requires a designated account.
This is where projects tend to unravel. A tribunal has said advance funding for section 20 works must sit in a separate service charge bank account, and that company money and service charge money must be kept apart. If the reserve fund has been sitting in the operating account for years, fix that before you demand another penny.
A tidy set of records looks like this:
- Separate Designated Bank Account For Major Works Money
- Project Ledger With Budget, Commitments And Actuals
- Reserve Fund Movements Shown Separately
- Interest Received And Any Tax Provided On It
- Retentions And Final Account Tracked Until Release
The government’s draft service charge accounts template shows the shape to aim for. It has separate lines for major works and for reserve or sinking funds, plus notes on trust accounting and tax on bank interest. At year end, compare actual cost with the demands raised and deal with any surplus or shortfall as your lease directs. Our guide to year-end service charge statements walks through that reconciliation.
If you run a resident-owned company, your annual statutory accounts also need to reflect these balances correctly. Good bookkeeping with one project code per scheme saves hours later, and Xero bookkeeping makes it easy to track budget against actual by project. The RICS code is the benchmark for managing agents on separate accounts, and we cover the latest changes in our note on the updated RICS service charge code.
What changes from 2027?
Regulations made on 25 October 2026 bring most of Part 4 of the Leasehold and Freehold Reform Act 2024 into force in England in 4 stages. The first new landlord duties start on 1 April 2027, with prescribed demands, accounts and annual reports following on 1 November 2027. The detail will come in further regulations.
Two points matter for planning. A demand that is not in the prescribed form means the lease provisions on late or non-payment will not apply. The annual report is also expected to cover the building’s condition and planned major works, so your multi-year plan will become something leaseholders can see. The CMS summary of the commencement dates sets out the stages in full, and the government is still to respond separately on major works reform and mandatory reserve funds.
If you are mid-project, set up your ledgers now so the figures can drop into the new formats. We expect managing agents to feel this first, which is why our accountants for managing agents team is already looking at reporting templates.
FAQs
Can major works be paid for in instalments?
It depends on your lease. Many leases allow on-account or interim demands, and landlords often offer voluntary payment plans, but the lease decides what you can require.
How much can I recover if I do not consult leaseholders?
Without consultation or dispensation, you can recover no more than £250 per leaseholder for the works, however much they cost.
Does a reserve fund remove the section 20 consultation duty?
No. LEASE confirms consultation is still required where works will cost any leaseholder more than £250, even if the reserve fund covers the cost.
How long does section 20 consultation take?
The 2 statutory stages give a minimum of 60 days. In practice, specification and tendering mean the whole process often takes 3 to 6 months.
Should major works money be kept in a separate account?
Yes. Service charge contributions are held on trust for leaseholders and should sit in a designated account, separate from the company’s own money.
Plan major works funding and accounting
Major works go smoothly when the lease, the consultation, the demand schedule and the accounts all line up. If you manage a block or run an RMC and want help structuring the demands and the project ledger, our service charge accounting team can set it up. For multi-block and mixed-use portfolios, see our residential property management accounting work, or get in touch or call 0115 648 8686.
I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.
Need Expert Accounting Advice?
If you are unsure about tax, bookkeeping, payroll, property accounts or business finances, speak to the team at FHP Accounting for clear, practical guidance.
