Richard Owen is a litigation lawyer acting for landlords and management companies in respect of a variety of property management issues at JB Leitch.
Residential Service Charge Disputes
Landlords finance the services carried out at blocks of flats via service charges paid by the tenants. Where a tenant refuses to pay his or her service charges, the landlord will often need to recover those arrears to enable the landlord to continue to carry out services.
Service charge disputes usually take place in either the County Courts or the First-Tier Tribunal (Property Chamber).
Typical Challenges
Where tenants dispute service charges, there are a number of arguments which tenants will usually raise. In particular:-
- The demands for service charges do not comply with relevant legislation. For example, the demands were not accompanied by the summary of tenants’ rights and obligations information (as required by Section 21B of the Landlord and Tenant Act 1985) or the demands did not contain the landlord’s name and address (as required by Section 47 of the Landlord and Tenant Act 1987). The latter point was at issue in the well known Upper Tribunal (Lands Chamber) case of Beitov Properties v Martin ([2012] UKUT 133 (LC).
- The service charges are unreasonably high.
- The manner in which the service charges have been demanded does not comply with the terms of the lease. For example, service charges have been demanded quarterly rather than half yearly or a demand for a year end balancing charge was not accompanied by a year end certificate. That said, in accordance with the case of Pendra Loweth v North [2015] UKUT 91 (LC), the landlord’s failure to serve year end certificates should only be a problem for the landlord if the terms of the lease render the service of the certificate a condition precedent of the relevant service charge becoming payable.
Starting a Claim
Typically, service charge claims commenced by landlords will be issued in the County Court. However, the Court may decide to transfer the claim to the Tribunal if the Court believes that the Tribunal would be a more suitable forum.
By contrast, a tenant wishing to challenge service charges will often issue an application in the Tribunal in which the tenant alleges that the service charges are unreasonably high.
Directions/Procedure
In the County Court, claims are usually allocated to the Small Claims Track. Court procedure on the Small Claims Track is relatively informal.
Typical directions will provide for the parties to serve witness statements upon each other and for a hearing (usually with a duration of two to three hours) to take place. The Court will normally give judgment at the end of the hearing.
Tribunal directions usually require the parties to serve various Statements of Case upon each other and the hearing will normally last for half a day to a day. The Tribunal’s decision will usually be given six to eight weeks after the hearing.
Differences in Approach
The Court usually adopts a broad brush approach to service charge disputes. By contrast, the Tribunal normally adopts a more forensic and inquisitive approach and usually wants to see copies of the service charge accounts and invoices, tokens and receipts relating to service charge expenditure.
Legal Costs
The vast majority of modern leases contain a clause entitling the landlord to recover its costs of service charge claims from the tenant.
The County Court will normally make a costs order in favour of the landlord at the end of the hearing.
By contrast, Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 states that the Tribunal may only make a costs order against a party where that party has acted unreasonably. Recent case law (in particular, Willow Court Management Co v Alexander [2016] UKUT 2190 (LC)) makes it clear that it is only in exceptional cases that a landlord will be able to persuade the Tribunal that a tenant has acted unreasonably for the purposes of Rule 13.
Tips for landlords
With a view to preventing service charge disputes and strengthening their position where disputes arise, landlords should do the following:-
- Read the terms of the lease to ensure that the service charges are being demanded in accordance with the same and that the landlord is complying with the lease in respect of service charge accounts and/or certificates.
- Keep copies of documents relating to service charge costs and service charges demanded from tenants (in particular, service charge demands, service charge accounts and invoices, tokens and receipts in respect of service charge expenditure) – there is a significant chance that the landlord will need to produce such documents during the course of any service charge dispute.
- Instruct a Solicitor to act in respect of any disputes. Some of the issues arising in service charge disputes can be complicated, especially where the case is conducted in the Tribunal.
- If your block is not managed by a professional managing agent, consider appointing one. Managing agents will be familiar with the statutory requirements relating to service charges and their costs will usually be recoverable (via the service charge) under the terms of the lease.
