Explaining the service charge
Services charges will be a common occurrence for those living in a flat, as they play a part in how the building is taken care of and maintained. Service charges are considered the only measurable and manageable way to cover the buildings maintenance costs.
If you live in a converted house, odds are you won’t need to pay monthly service charges, but in some cases you may be asked to pay such charges either quarterly, half-yearly or annually,
Service charges cause a huge number of disputes between leaseholders and landlords but thankfully, these disputes can usually be resolved before the landlord loses out financially due to non-payment by the leaseholder and before the leaseholder finds themselves evicted after forfeiture and possession action by the landlord.
Check your Lease
The lease will set out the details of the service charge which is essentially a fee for the services performed on the property. Your lease should make the following clear;
- The services you pay for
- When service charges are due
- How the service charges are collected
- How service charges are calculated and divided
- Whether it is a fixed or variable charge should be detailed in the lease
- Whether or not there is a reserve or sinking fund in place [see below]
Your lease will more than likely have a sweeping-up clause, this will be a term that covers general services that aren’t mentioned or broken down in the lease agreement. Not all lease agreements will have this clause and if yours doesn’t then you can’t be held accountable for any services that aren’t strictly disclosed.
Service charge costs can vary for year to year, this is especially true if your charges are listed as “variable” in your lease.
What does my service charge cover?
As indicated above, you need to check your lease, but in general terms, leaseholders must pay their service charge to the freeholder who may need to recover costs for the following:
• Maintenance and repairs
• Servicing of lifts
• Insurance premiums
• Contributions to reserve funds
• Costs of lighting, heating etc.
• Cleaning charges
Does my service charge have a maximum?
Provided that the charge can be deemed reasonable, there are no limits on how much it varies. If a freeholder does not believe the charge to be reasonable, they can take their issue to the First Tier Property Tribunal ( previously known as the Leasehold Valuation Tribunal or LVT).
Unlike ground rent, the purpose of service charges is to cover general repairs, regular cleaning and employment of certain building staff. In some instances service charges may cover building insurance, but this isn’t always the case and you may need to enquire with freeholder to see this is applicable to you.
Service charges are usually non-negotiable and you need to pay them whether you use the building services or not.
Challenging service charges
If you feel that the services you’re receiving are unsatisfactory or overpriced, you should write to the freeholder to set out your concerns. In such instances they may lower the rate you pay going forward or compensate you in some way.
If the freeholder is unreasonable and refuses to improve the quality or excessive price of maintenance services, you can take the dispute to the Property Tribunal – which will decide if your complaints are valid and hold the freeholder accountable if so.
Before charging you additional fees, your freeholder is legally required to inform you beforehand – this is all the more relevant when they are going to be carrying out expensive work. The following is what would qualify as expensive:
– Work that costs more than £250 per flat
– Services (general repairs, gardening or cleaning) that cost £100 or more per flat
You don’t need to automatically accept a freeholder’s word for any repairs that are set to take place – they should provide you with copies of two or more estimates that they have taken out for the work in question. Also, one of the quotes should be obtained from an independent contractor that has no connection to the freeholder.
Urgent repairs or maintenance
The only instance in which a freeloader can go ahead with a repair without your consent is if it is deemed urgent. If you feel you haven’t been consulted properly or in due time, then it may be worth seeking legal advice as you may not have to be held accountable for the work.
Excessive service charges
As a leaseholder you are entitled to a written breakdown of all charges you are required to pay, from which you should be able to judge how reasonable those charges are. Remember, your freeholder is perfectly within their legal rights to add a management charge to any bill, however it cannot be a charge to draw profit. When billed you should inspect all associated documents and take copies of them for future reference. It is considered a criminal offence if a freeholder withholds such information from you and the local council would be within their rights to prosecute them for doing so.
Are service charges mandatory?
Whether your building services are good or bad, you are required to pay them no matter what. If you choose not to pay the service charge imposed by your freeholder, they can take you to court over the matter and an eviction notice may even be served. However, for the freeholder to get a court order they must follow a special process known as forfeiture proceedings
What is a reserve or sinking fund?
As a precautionary measure some leaseholders pay repairs costs into a separate fund on top of their ordinary service charges. These funds are called “sinking funds” or “reserve funds” and act as a contingency should a large repair bill come in. In order for this fund to be effective it needs to be paid into regularly over an extended period of time.
Remember, if you sell your home before a payout is required it is doubtful that you will see any of your money back. Payment into such a fund is only necessary if it is stated in your lease. If you feel the time is right to set one up, speak to an experienced leasehold solicitor to get information on how to do so.
Reducing the need to recover service charge arrears
If landlords stay on top of credit control, they can keep down the number of times that they need to collect service charge arrears. By keeping credit high, landlords can insulate themselves from facing pressure from creditors.
Serving a demand for service charges
When demanding service charge arrears, the landlord must ensure that the demand is lawful. In order to be lawful it must be delivered to the leaseholder’s property in writing along with the document detailing the leaseholder’s rights and responsibilities and must feature the landlord’s name and address.
If the demand is unlawful the leaseholder will be under no obligation to comply with it. It is therefore important for the landlord to instruct a specialist solicitor to help ensure that the demand is lawful. Your solicitor will also be able to check that leaseholders pay the charges and if they do not they can send a firm reminder. If this reminder is ignored, the solicitor can then issue a warning that legal proceedings may be commenced unless payment is received. Late payment charges will be added to cover the cost of chasing the overdue arrears. Interest can also be charged and this is usually around 4%.
Service Charge Disputes – pay attention to time limits
Under Section 20B of the Landlord and Tenant Act 1985, the landlord must demand payment of the service charge within 18 months of the landlord incurring expense for the service. Failure to demand the charge within this time and tell the leaseholder when the charge is due can cause a big problem which is why it advisable to instruct a solicitor to make sure this does not happen.
Legal action over service charges
If the leaseholder does not respond to the demand for service charge arrears or any subsequent reminders they can be said to be in breach of the lease and the landlord can therefore decide to start forfeiture and possession proceedings. Such action cannot be pursued if the due debt is less than £350, in which case an application to the County Court will need to be made.
Forfeiture and possession proceedings are very complex and require the input of a specialist solicitor. In most cases, the costs associated with Country Court or forfeiture proceedings will be paid by the leaseholder. Click here to read more about forfeiture of leases.
In very rare cases, dishonest and unscrupulous freeholders have even been known to charge for services that do not exist, haven’t taken place or have been performed poorly. A fine example of this is that a leaseholder may claim to be paying for a building cleaner, without actually doing so. If you are having this sort of problem, taking the situation to the Property Tribunal may be the best option.
In some instances the Tribunal may deem the freeholder’s performance to be unsatisfactory and appoint someone else to manage the building. Obviously the freeholder will still own the building but their responsibilities will be greatly diminished.
Service Charge Disputes contact us today
As you will see above, it is crucial that you have the help of a specialist solicitor when trying to recover service charge arrears. Whether you are a freeholder or the owner of a leasehold flat, our team have the expertise you need. So for FREE initial phone advice on any aspect of your service charge dispute:
- Call us now on FREEPHONE 0800 1404544, or
- Fill out the contact form below to get in touch.