By Kavita Bharti, Legal Adviser at LEASE
One of the most common queries we get here at LEASE, is regarding unreasonable service charges and whether or not they can be challenged.
When you buy a flat, there are also a number of responsibilities that are usually included, including the financial responsibility of paying service charges to the landlord or the managers to reimburse them for the cost of running the building in which the flat is contained.
The outside of the building may need to be decorated. The building insurance cover must be put in place, involving paying a premium to the insurance company. The roof may need to be repaired or replaced. Dependent on the terms of the lease, these functions and obligations are likely to be down to the landlord or the property managers to deal with, and it will usually be the case that the leaseholders must pay a service charge to the landlord or managers to cover the costs for these works being done.
Leaseholders will want to be sure that their money is being spent properly, wisely and efficiently. It is important that the landlord and the property manager is open and transparent to enable the leaseholder to figure out whether these charges being made are reasonable or important. Read on to find out how best to go about it.
Reasonableness
Section 19 of the Landlord and Tenant Act 1985 limits the landlord to recovering those costs that have been reasonably incurred for works and services of a reasonable standard.
If a leaseholder believes the service charge is unreasonable they have a right to make an application to the First Tier Tribunal (FTT) to determine whether the service charge is unreasonable under the provisions of Section 27A of the LTA 1985.
A service charge may be considered unreasonable if the quality of the work is of a poor standard taking the cost of the works into consideration.
The FTT has the power to determine whether the service charge is reasonable and can make an order that it is not payable or reduce the demand to a reasonable amount.
What Does The Tribunal Look For?
In determining reasonableness, some of the questions that might be addressed by the FTT are:Are (or were) the works or services necessary?
- are the works or services required at all?
- are the works sufficient to remedy the perceived problem?
- are the works or services adequate or over-extensive?
Was, or is, the original specification for the works or service adequate? What were the landlord’s procedures for costing the works or services?
- has the landlord complied with the consultation requirements under Section 20?
- are there arrangements for competitive tendering or obtaining competitive estimates?
What are the landlord’s arrangements for controlling costs?
- what arrangements are there for checking the service provided against that specified?
- is the standard of the works or service proposed or completed appropriate and reasonable?
Please be aware that you will need to provide evidence to the FTT to support your case. You should undertake some investigations to do so. It is important to seek advice from expert contractors and obtain like for like quotes where possible. I would also recommend taking pictures in situations where works have not been carried out to a reasonable standard.
The FTT has unlimited powers to award a costs penalty against a party who unreasonably makes or defends an application or where a party conducts themselves unreasonably during the proceedings. It is therefore prudent to ensure there is merit to your case before making an application.
If a leaseholder is considering making any such application to the FTT, I would advise that they should also make an application under Section 20C of the LTA 1985 to prevent the landlord from passing off their legal costs on to the tenants through the service charge.
Obtaining Further Information
If it is properly drafted, the lease should provide for service charge accounts to be given to leaseholders at the end of the lease financial year. Such accounts may well be drawn up by an accountant. They should give a breakdown of what items and how much for them have been paid by the landlord or managers during the financial year. For example electricity bills, insurance premiums, gardening costs, or repair bills.
The lease may also entitle the leaseholder to inspect documents supporting the service charge accounts such as invoices and receipts.
As a leaseholder, you can take advantage of a tenant’s statutory right to seek a summary of the service charge account from the landlord under section 21 of the Landlord and Tenant Act 1985. The request must be in writing and can be sent direct to the landlord or to the managing agent. It can require a summary of the ‘relevant costs in relating to the service charges payable’ in respect of the last accounting year, or where accounts are not kept by accounting years, the past 12 months preceding the request.
Please follow the link to our on-line booklet on service charges for a more detailed explanation of your rights on this issue, or to make an application to the First Tier Tribunal.
Where a landlord has received such a demand he must provide the summary within one month (or within six months of the end of the 12-month accounting period, whichever is the later).
The summary should show:
- how the costs relate to the service charge demand, or if they will be included in a later demand;
- any items for which the landlord did not receive a demand for payment during the accounting period;
- any items for which a demand was received and for which no payment was made during the accounting period;
- any items for which a demand was received and for which payment was made during the accounting period; and
- Whether any of the costs relate to works for which an improvement grant has been or is to be paid.
As well as receiving the summary, the leaseholder has the right under section 22 of the Landlord and Tenant Act 1985 to inspect documents relating to his service charge as a follow-up to provide more detail on the summary. Within a period of six months from receipt of the summary, the service charge payer (or the secretary of a recognised tenants’ association) may write to the landlord requiring him to allow access to and inspection of the accounts, receipts and any other documents relevant to the service charge information in the summary and to provide facilities for them to be copied. Facilities for inspection must be provided within one month of the request, and must be available for a period of two months.
Where a landlord fails without reasonable excuse to comply with either a request for a summary or to inspect supporting documents they commit a summary offence on conviction and are liable for a fine of up to £2,500 (level 4 on the standard scale). The local housing authority has the power to bring proceedings, or they can be brought by the leaseholder. Local authorities are exempt from prosecution. Please follow this link for more information.
Conclusion
In conclusion, before initiating any application to the FTT, a leaseholder who believes their charges are unreasonable should make sure that their application has merit. It is advisable to obtain the relevant information in relation to these charges. The main one would be the right to obtain such information under the terms of the lease. Failing that, ss21 and 22 of the LTA 85 can force disclosure of information for the previous financial year. Also make sure you consider the questions that the FTT will look at to see whether the charges are reasonable in the circumstances.
LEASE is governed by a board, appointed as individuals by the Secretary of State for the Ministry of Housing, Communities & Local Government.
