Tenants will be familiar with their Leasehold requirement to make payment of service charges, which are used by Landlords to cover the costs of providing services in relation to their property. Examples of those services often include the cleaning of common parts of a building, the maintenance of an elevator servicing each floor to a property or payment of a concierge’ salary.
While service charges are an accepted requirement when purchasing a Leasehold property, there are occasions when the amount of the service charge just seems too high.
Further, Landlord’s cannot simply ask for payment for new work in the service charges if it will cost more than £250 per leaseholder. Where Landlords seek to increase service charges for work conducted by more than £250 per Tenant, they must first serve notice on each Leaseholder follow a set consultation procedure. If they fail to consult, Landlords and Tenants cannot simply issue county court proceedings for a disputed sum either.
There is a prescribed procedure to follow which starts with an Application to the Property Chamber First Tier Tribunal (Tribunal) usually by a Tenant, which enables the Tribunal to determine whether the service charge being claimed is in fact reasonable.
There are several factors of reasonableness which a Tribunal will consider when making its decision The first factor being whether a cost a Landlord has included in the service charge demand has been reasonably incurred.
The Tribunal decision in Forcelux Ltd v Sweetman and Parker [2001] confirmed that the test for recovery of service charges under a Lease was firstly whether the charges had been ‘reasonably incurred’ and not whether they were simply ‘reasonable’. Thus, a Tribunal will first want to see evidence of why a Landlord has included certain items in its service charge demand before any further factor is considered.
Although Forcelux Ltd related to a dispute regarding insurance premiums under section 19(2A) Landlord & Tenant 1985 Act; the decision applies equally to service charges.
Once a Tribunal has considered factor one, it will then give weight to the following factors,:
– Whether the costs included in the service charge were of themselves reasonable; and
– Whether works or services to which the charge relate were of a reasonable standard.
The Tribunal will consider all the evidence presented to it when making its decision.
Application to the Tribunal
Either a Tenant or Landlord can apply to the Tribunal for a decision as to whether a service charge, or proposed service charge, is reasonable. The application can be about work a Landlord has already paid for, services or other charges being proposed or in respect of a future service charge budget report which is contested.
Once all factors of reasonableness outlined above have been considered in full the Tribunal will make a Decision as to whether the service charges demanded must be paid in full or only the sum it has decided is reasonable.
Where a dispute arises regarding the level of service charges we can assist you in seeking to agree these charges or to apply to the Tribunal on your behalf. If you want any help with service charge demands please contact us on drteam@herrington-carmichael.com
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
