So you’re in dispute with your landlord over your service charge. Now what do you do? Elaine Dobson and Helen Matthews talk readers through the legal process.
Most long leases of flats include provisions by the landlord to repair, maintain and insure the building and by the tenant to pay their share of the cost in the form of a service charge. The wording of the lease is crucial in determining what tenants are liable to pay for but service charges must be reasonably incurred and any services or works carried out must be of a reasonable standard, as specified in section 19 of the Act.
Consulting with residents Freeholders and management companies are also required by section 20 of the Act to carry out detailed consultation with leaseholders before any work to blocks of flats is started. Failure to follow these requirements rigorously can result in a landlord only being able to recover £250 per flat, even if the costs are very substantial indeed. In the recent case of Daejan Investments v Benson [2011] EWCA Civ 38 (see Let those who don’t take notice beware, Flat Living, issue 7, p31) the landlord went through the first steps of the consultation procedure required by the Act but did not comply with it strictly enough. As only one of four estimates obtained were circulated to the five tenants, the Court of Appeal decided the landlord could only recover £250 per flat as against a total bill of £270,000.
In dispute It is easy to see how disputes can arise. A landlord, perhaps blissfully unaware of the consultation requirements, decides it is high time his building with 12 flats has a makeover. He goes ahead and instructs his builder to “do whatever needs to be done” in the expectation that, under the lease terms, he will be able to pass on the cost to the tenants. Imagine his surprise when his builder arrives at the property to erect scaffolding and the tenants ring him and ask what is going on. He tells them that he has already entered into a contract with the builder costing £300,000 so the works must go ahead.
What next? So what should the tenants do, given the huge bill with which they might be faced? In the first place the tenants should meet up, appoint two or three residents to take the lead and agree on a way forward, including appointing a suitably qualified solicitor to advise.
The solicitor consulted by the tenants is likely to advise them that a letter should be sent urgently to the landlord saying that unless he goes through the required consultation procedure they will not be prepared to pay the costs, and if necessary they will apply to the First-tier Tribunal (“FTT”) challenging the amount of money spent on their behalf.
Using the FTT Supposing the landlord will not back down, carries on with the work regardless and invoices the tenants for some £25,000 each? The tenants can apply to the FTT to determine the reasonableness of the service charges. They can seek to rely on the landlord’s failure to follow the section 20 consultation procedure to have their contributions limited to £250 each. The FTT can however order that the landlord was entitled to dispense with the consultation procedure. If the tenants’ solicitor advises that this may happen, a building surveyor should be appointed to act as expert witness. The surveyor can inspect the building and the works which the landlord has done and set out in an itemised report his expert opinion as to whether the works are of a reasonable standard and what would be a reasonable cost for them. The FTT will consider this report at a hearing, along with any expert evidence from the landlord, and decide what the tenants must pay to the landlord as service charges for the works, the optimum result being their only having to pay £250 each.
This can be a costly exercise for the tenants if it proves necessary for there to be an FTT hearing to settle the matter, perhaps around £15,000/£25,000 plus VAT between them. Even if successful the FTT can only award a maximum £500 costs against the losing party, but this is rare. If however the end result is that the tenants pay only £250 each instead of £25,000 each then it will be money well spent. The tenants can ask the FTT to make an order that the landlord cannot add his costs of the FTT application to the service charges (a “section 20C” application).
Finding the right solicitor How do you go about appointing the right person for the job? Make sure any solicitor you choose is familiar with current leasehold legislation and has relevant experience in the leasehold sector. It is vital to: ask about their experience; seek references; and determine how much they will charge. If you don’t get a satisfactory response to your questions – find someone else.
Elaine Dobson is a Real Estate partner and Helen Matthews a Senior Associate at Bircham Dyson Bell LLP. Tel: 020 7227 7000 www.bdb-law.co.uk.
