The most common cause of leaseholder-freeholder disputes is the payment of service charges. Leaseholders pay a service charge to cover the cost of services on the property but this charge can be extortionate in extreme cases with freeholders threatening forfeiture action if huge sums are not paid to cover major repair work.
Whereas the costs of services are generally covered in the rent of short-term tenancies, leaseholders generally pay higher, separate service charges to the freeholder. Both the landlord of the short term tenant and the freeholder of the leasehold apartments are legally obliged to maintain the properties to an acceptable standard but whereas the landlord can recover money through rent, the freeholder needs to recover it through a service charge.
A freeholder would defend the service charge by saying that it adds value to the property, makes it more pleasant to live in and that if leaseholder were in a freehold house for example they would have to pay for these services themselves. By contrast, a leaseholder might point out that if they owned the freehold they would be able to choose what was done to the property and that something which the freeholder is legally obliged to repair might not be something that a leaseholder would readily spend money fixing.
Service charges are generally made up of:
• A management fee: this is essentially an administration charge which doesn’t change much from year to year unless major works have been carried out, therefore necessitating interaction with contractors (this usually leads to a charge of around 15% of the work)
• Routine direct costs: these costs involve things like insurance premiums and electricity for communal areas
• Exceptional direct costs: these cover costs which do not regularly need to be paid, such as major repairs. It is this component which causes the most arguments because of the high sums of money which are often involved. In blocks of flats, major repairs to lifts and roofs for example can be enormously expensive.
The Landlord and Tenant Act protects leaseholders by stating that service charges are only payable if the charges are reasonable and relates to a service or repair which the freeholder is compelled to provide under the terms of the lease.
If a freeholder wishes to recover costs for works costing in excess of £250, they will need to fulfil certain requirements unless a prior agreement exists or the work is urgently needed.
• They must obtain at least two estimates for the cost of the work from contractors they are unconnected with. Any companies they have a stake in or have worked for would be unacceptable for example.
• They must display these quotes for leaseholders to see or send them to leaseholders in the post
• They must notify leaseholders of the work which will be carried out and encourage all leaseholders to send their views about the prospective work to a UK address. Leaseholders must be given at least 4 weeks to reply.
• Freeholders must give consideration to the views received and should respond themselves by addressing specific points made
Freeholders often fail to carry out these duties and if they do not do so the leaseholder can refuse to pay citing section 20 of the act.
Here are some other ways in which leaseholders are protected:
• Late charges: if freeholders do not charge the leaseholder within 18 months of the work being carried out, the leaseholder is not obliged to pay. Freeholders can however inform leaseholders of the charge and bill them later.
• Insurance: freeholders are usually responsible for insurance but sometimes the freeholder will nominate an insurer which the leaseholder must buy insurance from. If dissatisfied with the premium, leaseholders can apply to the Leasehold Valuation Tribunal or court who can order that the insurer is changed.
• Ground rent: technically this is not a service charge but it is collected at the same time. It is normally a fairly nominal fee paid in recognition of the fact that the freeholder still owns the land rather than to remunerate them for any services. Leaseholders need only pay this though if the freeholder formally requests and states the date by which it must be paid.
Looking for advice on service charges? Look no further
Get in touch today by calling us now 01722 422300, or
Complete the contact form below.
Comments or questions are welcome.