Service Charge Disputes

There are significant costs involved with managing and maintaining a multi-occupational development and these are usually the responsibility of the landlord and payable by the tenant under a lease. These costs are often referred to as ‘service charges’.

The lease will usually stipulate, amongst many things, the proportion of the service charge payable by the tenants, whether the service charge is variable or fixed, whether the service charge is payable in advance of any costs being incurred by the landlord and the way in which the service charge is to be demanded.  It will also explain whether the tenants’ liability to pay the service charge is conditional upon a certain act by the landlord.

Although this relationship is primarily governed by the lease, statute also provides various protections for tenants and obligations on a landlord to ensure that the service charge, or any other costs payable under the lease, are recoverable. Failure to adhere to the terms of the lease or these statutory protections can enable the tenant to withhold payment of such funds which can have an adverse effect on the landlord being in funds to maintain the development. Similarly, a tenant’s failure to comply could result in the landlord having the lease forfeit. It is therefore vital to ensure that both a landlord and a tenant observe their obligations under the lease.

Service charge disputes is a highly technical area of law and we are here to help when –

- Your tenant has failed to pay service charge, reserve fund and/or major works;
- Your tenant has failed to pay ground rent;
- You want to bring a claim for forfeiture;
- Your landlord has failed to follow the correct procedure for recovering costs associated with major works;
- You seek to obtain a determination as to the reasonableness and payability of service charge and/or administration charges; and
- You seek an order to prevent your landlord from using the service charge to pay for legal fees.

We have set out some further information below, however, contact us today to discuss your options and see if SCS Law can advise and assist you.

Service Charge Demands

When a landlord demands a service charge it must contain the landlord`s name and address, an agents name and address is not sufficient. The demand must also include a “summary of leaseholders’ rights and obligations”. This includes details of such matters as a leaseholder’s right to apply to the Tribunal, as outlined above. The law states that if the demand does not comply with either of these requirements, the leaseholder has a legal right not to pay unless and until the service charge is demanded in the proper manner.

You may be able to apply to a tribunal if you pay a service charge and you:

• think it’s unreasonable
• think the standard of work it relates to is unsatisfactory
• don’t think you should be paying it at all

Limitation Period of Recovery

Section 20B of the Landlord and Tenant Act 1985 states that a landlord cannot recover service charge costs that were incurred more than 18 months before he formally demands them. The exception to this rule is if he writes to the leaseholder within 18 months of incurring the costs informing them that he has incurred costs, the amount of them, and that they will be demanded in due course. Case law has indicated that costs are “incurred “when the landlord pays them or becomes liable to pay them; for instance, through receiving an invoice from a contractor or supplier.

Reasonableness

The Landlord and Tenant Act 1985 (as amended) states that a service charge is only recoverable by a landlord so far as the costs have been reasonably incurred. Also, it states that it is only recoverable if works carried out for the charge are of a reasonable standard.

If a landlord proposes to carry out works that will cost any one leaseholder more than £250, he is required to go through a consultation procedure under section 20 of the Landlord and Tenant Act 1985. This process involves providing leaseholders with notices allowing them to make observations on the proposals and sometimes to nominate a contractor from whom the landlord is to try to obtain an estimate. He also is required to notify leaseholders of the estimates.

A leaseholder can challenge the reasonableness of a service charge if it does not comply with above, ultimately, by applying to the appropriate Tribunal. In England, this is the First-tier Tribunal (Property Chamber) and in Wales it is the Leasehold Valuation Tribunal. They have power to make a ruling whether, or how much of, a service charge is reasonable or payable.