Service charges are charges paid by a leaseholder to a landlord (sometimes via a managing agent) for services provided to the building, for example, for maintenance, repairs, cleaning and insurance.
From a landlord’s point of view, service charges are an important part of managing the building, and having the leaseholders pay the service charges on time ensures that the landlord can provide the services that they are required to under the terms of the lease. However, sometimes leaseholders may feel that they are being overcharged, and in those cases, they may want to check whether the service charges can be challenged.
Potential areas of challenge:
- Is the item something that can be charged under the terms of the lease?
Landlords can only recover charges that the lease allows them to. Not all leases are the same, so often the first step will be to check the terms of your lease carefully to see whether the cost is one that the landlord is allowed to charge.
The precise wording of the lease is essential here; for example, just because a lease allows the landlord to charge for “repairing” something, does not necessarily mean they can pass on the cost of upgrading or replacing something that was not broken or worn out.
The reasonableness test
Even if an item is chargeable under the terms of the lease, the law says it is only payable if the charges were reasonable to incur, are reasonable in amount and if the works were carried out to a reasonable standard.
There is no single test of what “reasonable” means, but an example of what may not be reasonable would be a landlord replacing something that did not need to be replaced or using a particular product or brand which is much more expensive than other similar products.
Was it validly demanded?
There are certain rules a service charge demand must meet in order to be valid. It must contain the name and address of the landlord, and an address in England or Wales where notices can be served. It must also be accompanied by a summary of the leaseholder’s rights and obligations in relation to service charges. If the service charge demand does not comply with these rules, the service charge is not legally payable until the landlord serves a demand which does comply.
- Have the charges been demanded in time?
Generally speaking, a landlord can only issue a valid service charge demand for costs incurred within the last 18 months.
- Have the charges been properly split between the leaseholders?
Most leases will specify that a particular percentage or proportion of the overall cost can be passed on to each leaseholder, or they will say that the percentage passed on must be reasonable.
- Are there charges for “major works”?
Where the landlord is proposing to carry out major works to a building, the cost of which will be over £250 for any leaseholder, they must follow a particular process to consult with the leaseholders. Under that process, the leaseholders should be invited to observe the proposals and nominate a contractor. If the landlord does not follow the correct process, the landlord can only recover £250 per leaseholder towards the cost of those works.
A leaseholder can apply for the Property Tribunal to determine the extent to which their service charges are payable and reasonable. However, in many cases, it will be sensible to contact your landlord first to discuss the matter, before taking the step of applying to the tribunal.
Many leases allow the landlord to charge the leaseholder if the landlord needs to take enforcement action to recover unpaid service charges. There may be circumstances therefore where it is sensible to pay the service charges, even if they are in dispute. You cannot challenge a service charge which you have “admitted” as validly payable, but paying the service charges is not, in itself, an admission.