Q&A - Service Charges 

ANSWER

The rights and obligations of a Landlord are contained in the contractual arrangement between the both parties called a ‘lease’.  These come in all varieties, some with better provisions and wording than others.  This contractual document contains the “rule book “ or the “to do list” between a landlord and his leaseholder/tenant.  A set of obligations are imposed on the landlord to do things such as repair the property, insure the property and such like.  There are also usually corresponding obligations on a leaseholder to pay a landlord for their share of supplying these services.  Exactly what is to be provided and how this is to be recovered differs from lease to lease.

Just because a landlord has not charged service charge in the past, does not then preclude a landlord from charging in the future.  The law favours leaseholders in this regard and the landlord might well be prohibited from going back in time to recover costs that they might have had more than 18 months in the past unless they had made demand of the sums prior to that period or served what is known as a section 20b notice advising of what the shortfall should be.  There are also many rules relating to the context and form in which these notices are to be served in order for them to be valid.  These notices have also been amended and changed by a flurry of important cases setting out further rules relating to this subject.  In general terms, landlords cannot spring large bills on leaseholders going back years just because they forget to recharge them at the appropriate time or in the appropriate manor for with an inappropriate section 20B notice.

It is usual for a lease to contain a contractual clause to allow a landlord to use a managing agent to undertake compliance of these clauses on its behalf.  It naturally flows that the costs in providing this service are recoverable as well.  In older styled leases from circa 1985 and before, managing agents cost recovery was based upon a percentage of the service charge spend, usually 10% - 15%.  In more modern leases this clause is silent as practice moves to a more transparent mechanism of recompensing managing agents based on the concept of a set fee.

There is also a layer of Statute Law providing an additional veil of cover for both parties, particularly, leaseholders.  In its most simple form, it sets a precedent that all costs / service charges which a landlord intends to recover must be reasonable.  In the absence of agreeing the reasonableness of such costs, the law provides a mechanism for challenging the charges via the Property Chamber – First Tier Tribunal.  This is a straightforward tribunal system who specialise in determining lease and service charge issues.  It is used by many litigants in person (without solicitors) and is done so in a much more relaxed atmosphere than the Court system.

As to how much you might need to contribute, the lease document might call for a set percentage of the costs, but more likely it would call for the landlord to levy charges based upon a “reasonable proportion” of the costs, this usually being based upon floor area.

Changing a lease can be done.  There are 2 usual methods.  Firstly, by agreement between the leaseholder and the landlord.  This agreement is documented in a Deed of Variation usually drafted by a solicitor.  Secondly, where the parties do not agree, the law provides for a section 35 application to be made to the Property Chamber – First Tier Tribunal seeking their direction on altering a lease.  However, a cautionary note, just because a lease seems to be unfair in its construction, will not compel an Property Chamber – First Tier Tribunal to consider favourably an application to alter a lease.  After all, the lease or contract was entered into between both parties fairly and freely.  These applications usually have more chance of success when there is a manifest error in the lease and the lease does not work properly.

Michael Jacobs B.Sc (Hons) MIRCS MIRPM, Managing Director of Michael Laurie Magar Limited