Service Charges

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:

Service Charges—Summary of tenants’ rights and obligations

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.

2. Reasonableness

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.

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8 Responses to Service Charges

  1. Daphne Wallace-Jarvis says:

    Does ‘cost of works’ cover excessive water bills incurred where the Landlord has not taken action to mitigate or establish why the costs are so high. The issue goes back to 2009/2010 and continues. The landlord has not written to the Long Leaseholers and quoted a possible cost. Some leaeholders realised there was an issue when one took the LLord to the LVT on a number of issues which she won but the LVT stated that Water s/be investigated. The Leaseholders still have not received any indication of how much the cost might be until 3.11.12 when approx 10 Leaseholders went to a meeting with yet another Managing Agent (3 in 3 years) who stated the bill ammounted to £125k (23 flats &3 commercial properties).
    Please can you comment – My thanks DWJ

    • If the water supply is a common service provided for under the terms of the lease then you may still have the benefit of s19 of the Landlord and Tenant Act 1985 which allows you to challenge the reasonableness of the charges.

      If you wanted to challenge those costs it would be useful to have some sort of comparator to show in what way and to what extent the charges were unreasonable in amount. Further, it may be that there is not an appropriate apportionment between the commercial and residenial premises based upon usage. However, unless the invoices show that the only way it would come out will be in proceedings themselves.

  2. Joseph Buchan says:

    Does a levy to pay towards roof replacement have the same requirements, e.g. summary of rights and responsibilities ? Many thanks for your time.

    • Dear Joseph,

      In principle, it could. Section 21B of the Landlord and Tenant Act 1985 states that: “A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges”.

      Services Charges are defined in section 18 of the Act as:

      “Service Charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent—

      (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and

      (b) the whole or part of which varies or may vary according to the relevant costs.

      Therefore, as the roof works would appear to be repair or maintenance works then the summary ought to be sent with the invoice. The only doubt would be if the levy was a collateral agreement outside of the scope of the lease, it could then be argued that s21B doesn;t apply.

      • Joseph Buchan says:

        Many thanks – clear and worthwhile advice. This is very much appreciated.
        Joe

  3. Joe Buchan says:

    If, following the deadline for the responses to the statement of estimates, a better quote is received is this allowed to be considered by the RMC without resending the statement of estimates and waiting another 30 days.

    • Dear Joe,

      Thanks for your email. You will appreciate that I can’t advise fully or in detail without seeing all of the documentation etc.

      However, as a general proposition it does depend upon which of the consultation procedures are being followed. The management company is only under a duty to have regard to those estimates that are provided to it within the relevant periods and so does not necessarily have to take this “late” quote into account.
      If they wanted to, then that could undermine the entire consultation procedure and risk leaseholders avoiding liability on a technicality. That said, this may be an occasion where an application for dispensation from consultation would assist as there seems to be little prejudice to the tenants (although you may have to await the outcome of Daejan v Benson before the LVT will determine that application.

      As always I would be happy to assist.

      Kind regards

      Chris

      • Joe Buchan says:

        Your advice even without detail is very helpful. I can now see how best to proceed. Many thanks and my very best wishes .

        Joe

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