Service Charges in London: How are they calculated, charged and administered by landlords and paid for by leaseholders?

The London Assembley has published a report asking the questions on everyone’s lips, in response to an apparently bulging mailbag of complaints from residential tenants about their service charges and disputes with their landlords.  My own view is that many of these complaints eminate from poor advice on the content and rights / obligations in the lease when a tenant is purchasing but that is a blog post for another day.

The report alleges that the London leasehold market is worth around half a billion pounds in terms of the annual service charges paid by tenants.  By any measure this is a large market and generates a siginficant and ever increasing amount of litigation from the estimated 500,000 residential tenants.  While the report accepts that new legislation is unlikely to be forthcoming in the near future, the main recommendations are as follows:

1. Make the private sector service charge consultation process much more like the public sector equivalent.

The reason for this is that the public sector bodies are obliged to plan over a much longer period of time and that can give tenants more certainty over the expenditure that they will have to fund.  Public sector service charges across London tend to be around £1,000 p/a less than the private sector. Even allowing for sinkings funds this is one area where the public sector appears to outperform the private sector.

2. Mandatory consideration of the financial impact of the works on the tenants (ie make this a relevant consideration for the purposes of establishing reasonableness of costs)

This is the old argument from Daejan v Benson!

3. Increase transparency in service charge procurement and accounting

This points the finger at the St Georges Wharf case which shone a light on a complex web of associated companies which won contracts to provide services to the building.  The LVT dug beneath this and awarded the residents a circa £1 million refund.

4. Free representation and more mediation

The proposal for resolving the “resource imblance” between landlord and tenant isn’t sensible.  The suggestion being that tenants avail themselves of law students and other pro bono services to take on landlords who can afford to instruct wiley experienced practitioners like me!  There is no substitute for proper advice and representation and only if the costs rules are relaxed and advrse costs become recoverable at LVT can this be properly addressed.  Further, the spectre of mandatory mediation is on the horizon which could work provided landlords don’t use the costs of such an additional procedural hurdle to make life more difficult for tenants.

5. Make Right to Manage easier in London

Getting the 50 + 1 % can be more difficult as London has a higher proportion of non-resident tenants or non qualifying premises and so it is generally harder for an RTM claim to gain traction.

The full report can be read here:

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