Challenging the Reasonableness of a Service Charge

introduction

As we have seen from our overview, there are various protections for leaseholders regulating how Service Charges can be levied.  This is underpinned by Section 27A of the Landlord and Tenant Act 1985 which applies a limitation of reasonableness to service charges. Effectively, it empowers leaseholders with the entitlement to have the reasonableness of Service Charges to be decided upon by the First-tier Tribunal and to determine whether the service charge is payable.

On WHat GROUNDS CAN SERVICE CHARGES BE CHALLENGED

There are many grounds on why a demand for service charge or a service charge itself could be deemed as invalid or non-payable, the following is a non-exhaustive list:-

  1. Service Charge demands must include the 'summary of rights' which can be seen here in order for the demand to be deemed valid (Section 21B of the Landlord and Tenant Act 1985)
  2. Service Charges must include the name and address of the Landlord (Section 3 of the Landlord and Tenant Act 1985)
  3. If more than 18 years have passed between the service charge being incurred and the service charge being validly demanded. (Section 20B of the Landlord and Tenant Act 1985)
  4. the Charge made is not one that is specified with the Lease. There are certain exception so this, such as required Fire Risk Assessments, however otherwise the contractual position prevails.
  5. the amount that is being charge is disproportionately high.

There are also other types of charges due under the lease, such as charges for the Landlord's consents, or for legal work incurred by the Landlord in remedying a breach of lease (such as the non-payment of service charges). These types of costs are classified as "administration charges" and subject to the same scrutiny on reasonableness of shown above.

withholding service charges

Section 21A of the Landlord and Tenant Act 1984 describes the entitlement to withhold the payment of service charges, basically concerning the non-provision of certain types of required information.

Leaseholders are entitled to:

  1. To seek a summary of the service charge account from the landlord(21 of the Landlord and Tenant Act 1985); and
  2. To inspect accounts, receipts and other documents relating to the service charge summary and to take copies of these(22 of the Landlord and Tenant Act 1985).

And therefore the non-provision of these provide a lawful excuse for leaseholders to withhold payment until such information is provided and also be immune from recovery cost actions incurred within that duration.

However this is a high risk strategy since if it can be shown otherwise, the leaseholder is opening themselves up to potential litigation costs.

HOW TO APPLY TO THE TRIBUNAL

An Application 27A of the Landlord and Tenant Act 1985 can be made by completing a form and sending this to the appropriate First-tier Tribunal depending on the geographical location of the subject matter property.  However before doing so the leaseholders will first need to be prepare their case. 

This is because the onus is upon the leaseholders to support their grounds of dispute.

For example, if your dispute is on the basis of ground 5 shown above (quantum of charges) then you will be required to provide the Tribunal with comparable evidence from a similarly sized block and similar quality block to prove that such charges should be cheaper.

The Tribunal is considered a non-costs court, meaning that each side is expected to incur their own costs in any legal costs incurred in the conduct of the case. This is not an absolute rule however as it is possible for either party to claim costs for unreasonable behaviour in bringing of defending a case. Case law (Willow Court case) has proven that the threshold for such reasonable behaviour is very high, meaning that the leaseholders and landlords should not expect that such legal costs will be recoverable from the other party in this way.

It is also worth noting that most Landlords and Management Companies will try to find their own legal costs from the global Service Charges charges to all leaseholders under the 'sweeping up' clause within the leases. It is possible to apply under Section 20C of the Landlord and Tenant Act 1985 for an Order that the costs incurred cannot be funded by the Landlord/Management Company in this way. A tribunal is likely to grant such an order if it would be injust for it to be levied against the leaseholders.

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