Service Charges provide a fruitful ground for tenant discontent and disputes. On new developments, service charges turn out to be more expensive than anyone predicted at the outset and the charges are almost universally grumbled about and resented by tenants. In my experience, tenants tend to feel that they do not on the whole get value for money.
There is a raft of legislation regulating the residential service charge regime, particularly the Landlord and Tenant Act 1985 (as amended) which is there to protect tenants from the worst excesses of rogue landlords/management companies/managing agents.
I am still regularly instructed in service charge disputes, primarily by landlords who for the most part are still obliged to provide services to the tenants irrespective of the tenants poor or non-extstent payment record, which represents the other side of the coin.
The main aspects of the statutory regime are as follows:
1. Notices to accompany demands:
Section 21B of the Landlord and Tenant Act 1985 requires all landlords to supply a summary of tenant’s rights and obligations with each service charge demand. Failure to do so can result in the service charge not falling due and the suspension of any provisions in the lease relating to non-payment until this is complied with. My recomendation for landlord’s is to print this onthe reverse of your invoices to ensure it is never forgotten or questioned by a tenant. An example of the prescribed information as a .pdf is shown above.
The concept of reasonableness acts as a cap on what the landlord is entitled to recover from the tenant. This is always a fruitful ground for a dispute and I could (and will!) write several articles on the case law that has developed in this area.
Many tenants allege that major works end up costing more than they should have because they were exacerbated by historic disrepair or mismanagement by the landlord. Consequently the they maintain that they should only be liable for what it should have cost but for those issues.
In the case of “reasonableness,” payment of service charges on account by the tenants will not mean that they are unable to later bring a challenge (ie tenants are not taken to admit a charge just because they have paid on account). This makes for a lot of latent litigation, where tenants come back often a number of years after the original issues in dispute questioning the reasonableness of the charges.
3. Section 20 Consultation
Landlords are required to undertake a statutory consultation procedure before incurring expenditure on works or certain long term agreements (in excess of 12 months) where any leaseholder would have an individual liability in excess of £250 (for works) or £100 (for long term agreements). Failure to follow this process properly (or at all) will limit the tenants liability to £250/£100 each and can leave the landlord with a hefty bill. The rules are slightly more flexible for residents management companies but the starting point should always be a full consultation.
In some instances a full consultation under section 20 of the Landlord and Tenant Act 1985 can be avoided such as in emergencies or where all of the leaseholders have formally consented to the expenditure. If necessary, it is then possible to prospectively or retrospectively apply to the Leasehold Valuation Tribunal to dispense with statutory consultation procedure. Technically, without the full consultation taking place or an order from the LVT dispensing with the requirement, then the tenants should not have to pay more than the amounts set out above.
4. 18 month time limit for demands
Expenditure incurred by a landlord more than 18 months before a demand for payment of the service charge is served on the tenant will not be recoverable from the tenant, even if it is reasonable. This time limit was introduced under section 20B of the Landlord and Tenant Act 1985 and was designed to cure the age of problem of the long slow audit process followed by invoices for ancient deficit charges many months (or sometime years) after the end of the financial year in question. The penalty for a landlord who is slow to reconcile the accounts is that it may not be able to recovery all of the historic expenditure.