Lee Stafford, Partner at Bishop & Sewell, talks us through the sticky area of service charge disputes.

Service charges remain a common area for dispute between landlords and tenants; the landlord often decides how to spend the tenant’s money and the recovery of this money by service charges demanded from tenants can often be high and regular (quarterly, bi-annually or annually for example) and, accordingly, they can become a breeding ground for resentment.

So, what is a service charge and on what basis can a landlord claim them from a tenant?

A service charge is a charge by a landlord for services provided to a tenant – both the contractual obligation on the landlord to discharge these obligations, and the burden on the tenant to remunerate the landlord will be set out in the lease. Common examples of service charges include: building maintenance and repair costs; building improvement costs; buildings insurance costs; and building management costs.

Service charges are also subject to certain statutory controls. For example, service charges must be reasonably incurred by landlords and only charged for works that are carried out to a reasonable standard (section 19 of the Landlord and Tenant Act 1985 (“LTA 1985”)), however there are varying rules dependant on whether it is a residential or commercial lease.

Since both the service and the charge should be contractually defined, and given that there are also statutory controls in place, one would presume that there should be little reason for disputes to arise in relation to them. However, this is not the case.

Possible reasons for such disputes arising can include, but are not limited to:

• a failure by the landlord to properly apportion the costs for managing a building or estate between all of the tenants
• landlords preparing and serving invalid service charge demands
• a failure by landlords to consult tenants before large service charges are incurred or demanded
• landlords failing to claim or notify tenants of purported service charges within 18 months of the same being incurred
• quality of the service and/or works being provided by the landlord
• actual necessity for the work being undertaken by the landlord
• a failure by landlords to undertake timely repairs

Unfortunately, the brevity expected with these articles precludes us from addressing the non-exhaustive list of possible reasons for service charge disputes arising, however, a common theme running behind most, if not all, of those disputes is a lack of proper, or any, supporting documentation relating to the service charges being claimed by a landlord – no-one likes to receive a bill when they don’t recognise what they are being charged for.

A common first question therefore is: “what must / can I compel my landlord to disclose regarding the service charges that I am being asked to pay?”

In Summary, tenants have statutory rights to:

• request a written summary of the service charge account from landlords, which should include the service charges of the tenant, any associated service charges (relating to other tenants) and relevant costs relating to those service charges, for the last accounting year (12 months) or, if accounts are not kept by accounting years, the past 12 months ending at the date of the request  (section 21 LTA 1985)
• inspect accounts, receipts and other documents relating to the service charge summary and to take copies of all such documents (section 22 LTA 1985)
• request a summary of insurance cover and to inspect insurance policy documents (section 30A and Schedule 1 LTA 1985)

A “section 21 request” must be made in writing and served on the landlord or managing agent (which includes an agent of the landlord named in the rent book or similar document or the person who receives the rent on behalf of the landlord).  It is worth keeping an up to date record of the address for service of the landlord, it is often different to that contained in the lease (although it should be readily available on any demands you have received).

If any of the relevant service charge costs were incurred by a superior landlord, then the intermediate landlord served with the “section 21 request” must in turn make a written request for any relevant information to their own landlord (section 23 LTA 1985) – this can often lead to a slight delay which is to be expected when there are multiple parties.

A “Section 22 request” must be made within six months of obtaining a written summary of the service charge account and served on the landlord or managing agent (which includes an agent of the landlord named in the rent book or similar document or the person who receives the rent on behalf of the landlord).

Finally, and as should be remembered by landlords and tenants alike, if a landlord fails to comply with a “section 21 request” and/or “section 22 request”, and also does not have a reasonable excuse for said failure, the landlord will be committing a summary offence (a criminal offence that is only triable summarily in the magistrates’ court) and could be liable for a fine of up to £2,500 if so convicted (section 25 LTA 1985). Not particularly helpful to a tenant trying to obtain information.