Quick guide to the basics of Service Charges
What are service charges?
If you live in a leasehold flat, or a house within a managed estate, there will likely be items of expenditure that would be incurred, and shared amongst all the other leaseholders in the building/management area.
Things such as the Cleaning and repairs and replacements within the communal areas, and even buildings insurance are all types of expenses that when levied upon the leaseholders fall under this umbrella term of a "service charge".
The Lease is the document that will determine what can or cannot be levied upon the leaseholders in such a way.
When are they payable?
The contents of lease determines when such sums can be levied upon the leaseholders. Such levies are issued via a 'service charge demand' that are often given bi-annually. Most modern leases enable the Landlord entitlement to receive these monies from the leaseholders in advance of expenditure. In other words, those expenses will not be actually paid until the landlord first receives sufficient money from the leaseholders to do so.
Typically the Landlord (or managing agent, in a case where one has been appointed) will estimate a budget of such expenses at the beginning of service charge year to inform the leaseholders what those sums should be.
It is worth mentioning at this point that in the case of "major works", there is an additional step that the Landlord must take before levying such charges. Which is a process known as the Section 20 consultation procedure.
Can the Landlord charge whatever they want?
Click here for more info about the Reasonableness of Service Charges
The Landlord and Tenant Act 1985 (as amended) states that a service charge is only recoverable by a landlord in so far as the costs have been reasonably incurred. It states that it is only recoverable if the works that were carried out for the charge were of a reasonable standard.
The means of challenge is by way of an application to the First-tier Tribunal (which is effectively a property court established to deal with such subjects). This "FTT" can determine whether and to what extent those service charges are payable. It is worth noting however, that it is not merely enough that leaseholders allege that the service charges are unreasonable. The tribunal will expect the leaseholders to be able to support their allegations with evidence, such as comparable quotations for the same services.
Am I required to pay service CHARGES upon RECEIVING any demand?
The recommended answer to this question is usually going to be "yes", even if you have some legitimate grounds for not wishing to pay. This is because contractually the Lease requires you to do so. However, there is the possibility that what is being demanded of you is invalid due to the statutory provisions that provide that a service charge is not payable unless certain conditions are met.
But, in all cases, one should seek legal advice before deciding not to pay, as there are substantial risks involved with refusing to pay service charge demands.
First of all, without lawful excuse, contravening any lease clause is classed a "breach of lease", for which a landlord is able to seek legal recourse against the leaseholder.
The most severe of such remedies is the seeking of "forfeiture" - which is whereby the Landlord can apply to have the court effectively bring the lease to an end, thus depriving the leaseholder of their asset. This remedy has been considered to be draconian and therefore the law
requires that this measure is only exercised as a last resort after other alternatives have been explored. This is known as 'relief from forfeiture'. However in certain circumstances, for example, where the sum is unlikley to be recoverable, or the debt or breach is overwhelmingly significant, then courts may indeed grant this remedy.
Furthermore, in most modern leases there exists what is commonly referred to as an "indemnity clause"; such a clause entitles the Landlord to recover their legal costs incurred in seeking compliance against a contravening leaseholder. In other words, the solicitor charges that are incurred in taking enforcement action can be recovered from the defaulting leaseholder.
Therefore if you are considering to withhold service charges, you should always seek professional legal advice before doing so.
What Kind of grounds will allow me to withhold payment
There is leasehold legislation that the requires the Landlord to meet certain standards in order for service charges to be deemed payable. Click here for more info about Section 20 Consultation
For example, the service charge demands themselves must include certain information.
1. It must contain an accompanying "Summaries of rights and obligations". Commonhold and Leasehold Reform Act 2002, in Section 153,
2. It must contain the Name and Address of the Landlord. Section 47 of the Landlord and Tenant Act 1987
3. Service Charges must be demanded with 18 months of expenditure. Otherwise, they are unrecoverable. 20B of the Landlord and Tenant Act 1985
4. If the landlord is seeking monies for 'Major Works" that exceed £250 per service charge year, he must first commence a consultation process (referred to as the "Section 20" process (Landlord and Tenant Act 1985)