Residential Service Charges Disputes

ii) What is a ground rent?

Ground rent is the amount payable for the use of the land upon which a building stands. It is calculated by reference to the value of the site without any buildings on it.

iii) What is a reserve fund?

A reserve fund is an amount accumulated by a landlord to cover costs which are incurred on a regular basis but which may vary in amount, for example, the costs of redecoration. It is often confused with a sinking fund which is created to cover large costs incurred on an irregular basis, for example, the repair or replacement of a lift. It is recommended that reserve funds (and sinking funds) accumulated on behalf of the tenants of residential premises are held in an interest bearing account on trust for those tenants. As such, they should be held separately from the landlord’s monies.

What are some of the points to look for when considering a challenge to service charges?

The Lease - Check to make sure the lease terms have been followed. Do not assume the landlord has followed the lease terms to the letter.

Condition Precedent - Quite often the lease will require a landlord to carry out certain tasks before it can recover service charges from the tenant.  These might include accountant’s certificates and demands.

Service Charge Percentage -  In a building with many flats make sure the correct service charge percentage has been applied under the lease.

Limitation - Section 20B of the Landlord and Tenant Act 1985 (the 1985 Act) states that  service charges are not recoverable if they were incurred more than 18 months before being demanded.

Reasonableness - Section 19 of the 1985 Act only permits recovery of service charges where the costs have been reasonably incurred and the works are of a reasonable standard.

Consultation Requirements -  Under section 20 of the 1985 Act a landlord is required to consult a tenant before incurring service charge expenditure on certain items over a financial limit -  the limits which trigger consultation are £250 for an individual tenant’s contribution to qualifying works and £100 for a tenant’s contribution to what are known under the 1985 Act as qualifying long‚˜term agreements.  A failure to consult could limit the tenant’s contribution to the service charge to these limits.

Costs - Legal disputes can be expensive, particularly if there is a landlord’s cost recovery clause in the lease.  Under Section 20C of the 1985 Act, a tenant may apply for an order that all or any of the costs incurred by the landlord in connection with legal proceedings are to be excluded from the service charge payable by the tenant.