Administration charges - what are they?

Since the introduction of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) these charges have become regulated (to some extent).

The act defines an “administration charge” as “an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly” for one of the following:

• Costs associated with the granting of approvals under the lease or considering applications for approvals (consent to assign, sublet or alter);

• For or in connection with the provision of information or documents by or on behalf of the landlord or a person who is a party to the lease other than as a landlord or tenant, i.e. dealing with leasehold management enquiries when a flat is being sold;

• Charges arising out of a failure by the tenant to make payment for charges due under the lease;

• Charges arising from a breach of lease covenant.

As with service charges, a demand for an administration charge must be accompanied by a summary of the rights and obligations of tenants, for the charge to be payable. The form of the summary is prescribed by legislation and it must be printed or typewritten in a font no smaller than ten points.

A tenant who has received a demand to pay an administration charge that is not accompanied by the summary may withhold payment. Furthermore, any late payment provisions within the leases do not kick-in until the tenant has received the summary.

The CLRA 2002 divides administration charges into those that are specified in the lease or calculated to a formula specified in the lease; or those that are “variable” in nature.

A variable administration charge is only payable to the extent that it is reasonable. An application can be made to the First Tier Tribunal (FTT) to determine:

• The person by and to whom the administration charge is payable;

• The amount which is payable;

• The date at and manner in which the administration charge is payable.

Such an application can be made irrespective of whether payment has been made. An application cannot however be made if the matter has been admitted by the tenant, has been determined by a court or arbitration process, or has been referred to an arbitration process.

A non-variable administration charge will be governed by what is specified in the lease; the only way to challenge such an administration charge will be by making an application to the FTT for the variation of the lease.

Any party to the lease may make such an application asking the FTT to make an order on the grounds that the administration charge specified in the lease is unreasonable, and the formula set out in the lease is unreasonable.

If successful, any variation will be binding on the parties for the duration of the lease and any successors in title.

In addition, it seems on the face of it, that landlords could apply to increase the non-variable administration charge provisions in the lease on the basis that the charge or formula is unreasonably low.