Leaseholder Rights: Challenging Service Charges

Leaseholders have protection against paying unreasonable charges claimed within a service charge. Know your rights and how to exercise them.

Many leases provide for the payment of a service charge. Leaseholders should be aware of their rights to challenge service charges that are not recoverable in accordance with the terms of their lease or those that are ‘unreasonable’, and the process for seeking a Tribunal’s determination of the disputed charges.

Kayleigh Whitman, Associate at Coodes, shares more details about service charges and how to challenge them.

What is a service charge?

A service charge is a variable cost paid to a landlord for services, repairs, maintenance, improvements, insurance, and management of a dwelling. The charges vary depending on the costs actually incurred by a landlord.

Provisions for a leaseholder to pay a service charge are contained within a lease. The lease will set out what services are included within the charge. This should always be a tenant’s first reference when assessing whether the charges claimed are recoverable. A landlord can only recover costs which are contractually recoverable and reasonable.

In addition to setting out what charges are recoverable by way of a service charge; the lease will set out the process for demanding payment of the service charge and the payment terms. Many leases allow a landlord to obtain money on account of the service charges.

Serving a Demand

When serving a Demand, a landlord must provide the tenant with a name and address for the landlord. Consequently, if the address is not in England or Wales, an address where the tenant can serve notices must be provided. In addition to the address details, a landlord must serve upon the tenant, a notice of their statutory rights. The tenant is not obligated to pay the demand until address details and notice have been received.

Tenant Considerations

When assessing whether to agree to the service charge claimed, a tenant should consider:

1. Does the lease allow recovery of the items claimed?
2. Does the charge relate to the accounting year for which the demand is served?
3. Has the landlord followed the process of demanding the charges as set out in the lease?
4. Has the correct apportionment been applied to the demand?
5. Are increased charges being claimed because of neglect of the property?
6. Have the charges claimed been admitted?
7. Do any of the charges relate to legal proceedings?
8. Is the landlord claiming more than £250 for a single set of works, an agreement entered for more than 12 months, or under a long term agreement to carry out works?

Service Charge Disputes

Both a landlord and tenant have the right to make an application to the First Tier Tribunal under section 27a of the Landlord and Tenant Act 1985, to determine whether a charge or proposed charge is reasonable. An application can be made in respect of costs that have been incurred, or estimated charges requested on account.

An application cannot be made in respect of those charges which have been agreed or previously determined by the court or tribunal.

Coodes LLP act for both landlords and tenants in service charge disputes. If you require any assistance in assessing the recoverability and/or reasonableness of costs claimed, or you require representation in making an application to the Tribunal, please get in contact with the Coodes Team. Call 0800 328 3282 or use our online contact form.