If you are a residential long leaseholder, there is legislation in place to protect you from paying too much to your landlord or management company in service charges. Although the legislation is well-intended, often it can be a complex process to prove your service charges are unreasonably high.
Nevertheless, there are many ways you may be able to challenge a service charge, reducing the amount payable or even avoiding payment altogether. Indeed, there are several issues which you should always consider. These include:
Does the lease allow recovery of the charge?
Remember, you are not responsible for charges unless they are specified in the lease. Don’t forget that the legal interpretation of words and phrases is crucial. There’s a lot of case law on the interpretation of leases, and it’s prudent to take legal advice if you are uncertain whether the charge is ‘caught’ by the lease.
Have the procedural requirements in the lease been adhered to?
If your landlord has not complied with the lease conditions, the service charge is not recoverable. If the lease requires the annual service charges to be certified by a surveyor or accountant, the charges might not be payable unless and until the certificate is produced. In one case, under the terms of the lease, before commencing any works, the landlord of a block of flats was required to provide the leaseholders with a copy of the specifications for the works, together with cost estimates. As the landlord failed to do so, the court held that the leaseholders did not have to pay those costs.
Has the landlord complied with their statutory consultation obligations?
No matter what the lease says, where major works will result in payment by individual leaseholders of more than £250 each, the landlord must follow a statutory consultation procedure. The procedure requires service of “section 20 Notices”. If the landlord fails to comply or does not comply correctly, they will have to seek dispensation by applying to the First-Tier Tribunal (Property Chamber) or Leasehold Valuation Tribunal in Wales, failing which they will be unable to recover more than £250 per lessee.
Do the service charges comply with section 19 of the Landlord and Tenant Act 1985?
This states that only reasonable service charges are payable. The service charges must be reasonably incurred and reasonable in amount. The work must also be done to a reasonable standard. This is discussed further in our article: What are service charges?
Has there been a correct apportionment of the charges?
Your landlord can only recover from each leaseholder in your block or development the share of the total charges as specified in the lease. If the lease sets a fixed percentage, the landlord cannot recover more than that, even if the combined percentages are lower than 100%. If the lease specifies a ‘due proportion’, this means a ‘fair and reasonable’ proportion. If there are 10 flats in a building but only 8 have been sold on long leases, the landlord must make a fair allowance to reflect the two retained flats, and it would be unreasonable to load 100% of the service costs onto the 8 leaseholders.
Has the landlord correctly demanded payment?
Legislation provides that service charge demands will be of no legal effect unless:
- The demand contains the name of the landlord, and an address for them in England & Wales;
- The demand contains a copy of the prescribed summary of the tenant’s rights;
- The landlord has provided an address where the leaseholder can serve notices on the landlord.
Does the landlord have a history of neglecting the property?
A landlord cannot pass on to a leaseholder through a service charge, the cost of their historical neglect of the property. To reduce the charges you would need to prove the costs are higher than they would have been had the landlord maintained the property properly.
Have you agreed or admitted the service charge?
If so, you cannot then challenge its reasonableness. But can a service charge be agreed by default? If you pay a service charge, that does not in itself mean that you admit it. However, the Upper Tribunal has held that payment of a charge for five years without ‘qualification or protest’ infers agreement. If you dispute a service charge it is possible to pay it ‘under protest’ to avoid being taken to court.
Has the landlord delayed telling you about the costs they have incurred?
The service charges will cease to be payable after 18 months if the landlord has not demanded payment or notified the leaseholder about the expenditure in that time.
Have there been third party contributions to the cost of the work?
Perhaps there has been a payment resulting from a manufacturer’s warranty, an insurance claim or a public sector grant. Service charge provisions in a lease should be interpreted to prevent ‘double recovery’. A landlord should therefore give credit for third-party payments and reduce the service charge accordingly.
Is the charge to pay for the cost of legal proceedings?
Some leases provide that the cost of legal proceedings incurred by the landlord can be passed on to the leaseholders. But leaseholders can apply to the First-tier Tribunal (Property Chamber) for an order excluding some or all of these costs from a service charge demand. The court has considerable discretion and can make such order “as it considers just and equitable in the circumstances.” If the lease terms allow the landlord to recover the cost of legal proceedings which have been threatened but not commenced, the leaseholder can challenge the reasonableness of these costs.
The timing of a challenge to a service charge can be crucial
Leases commonly allow the landlord to recover their costs incurred in enforcing the terms of the lease. Therefore, if a service charge is disputed, it can be advisable for the leaseholder to pay the charge before challenging the charge in the First-tier Tribunal (Property Chamber).
Have you spoken to your neighbours?
In many service charge disputes, your neighbours will feel the same. Acting together to instruct solicitors can help in terms of sharing the cost, and increase your negotiating power. It can also open other options such as the Right to Manage or Collective Enfranchisement.