Fighting the system – Service charge disputes
Service charges will be familiar to most people holding flats or houses under a long lease. A leasehold owner owes various obligations to the freeholder (or a management company, where present) as set out in the lease including paying ground rent, contributing towards the insurance of a multi-occupier building and paying service charge, generally, the largest component of any financial obligation.
A service charge is intended to permit the freehold landlord to act for the good of the whole building or development in providing services and maintenance. Hence, the amount of service charge demanded may go up and down and may spike dramatically if major works are required. Most leases will allow the landlord to claim estimated costs of works ahead of time or an amount towards a sinking fund for anticipated future works.
It is common for leaseholders to balk at service charge demands and it is certainly not unknown for landlords to over claim or even seek to profit. Service charge demands are required to be reasonable but that can be a very subjective term and landlords and leaseholders often have very different perspectives.
What can leaseholders do if they feel they are being overcharged for services and repairs? Below are a few possibilities.
- Request a summary of the service charge from the landlord as per section 21 of the Landlord & Tenant Act 1985 – Leaseholders then have the right (under section 22) to request further information within 6 months of receiving the summary. It is worth bearing in mind that a large demand for service charge may be reasonable if the building needs work!
- Take action at the management company level – it is very common for service charge to be controlled by a management company, the shareholders of which are the leaseholders themselves. This is often overlooked as a remedy but if the leaseholders are dissatisfied then a sufficient body of them can call a meeting of the management company, appoint new directors and then install new managing agents or take over the management direct.
- Seek the judgment of a tribunal – leaseholders can bring a service charge dispute to the First Tier Tribunal which will rule on whether a demand is reasonable and make reductions if appropriate. Leaseholders should also note that the tribunal may take a broad approach to what is reasonable. In the recent case of De Havilland Studios v Peries for example, the tribunal ruled that even though replacement of windows in a building would have been the better option, the landlord’s decision to simply repair the existing windows was not unreasonable, simply not optimal, and so the landlord was entitled to charge for the work.
- Exercise enfranchisement rights – there is a raft of rights available to groups of leaseholders who want more control over the property, from taking over management of a building from the landlord to purchasing the entire building. This is a major step with complex legal requirements and protocols and it is worth seeking legal advice to make the most of these opportunities.
Partner and Head of Dispute Resolution
Commercial Dispute Resolution
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks
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Luke Patel
