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13 November 2018 | Comment | Article by Rebecca Rees

Service charges – traps for the unwary landlord

A landlord carrying out works or providing services which are chargeable to leaseholders or tenants through a variable service charge needs to be familiar with the rules which are in place that restrict what can be charged. A failure to comply with the rules can be expensive and even result in the cost of the work not being chargeable.

The Landlord and Tenant Act 1985  restricts costs which can be charged to those which are “reasonably incurred” in relation to work which is done to a “reasonable standard”. Furthermore, where the costs to be charged in relation to works or long-term agreements meet certain thresholds, the landlord must consult.

Where a tenant feels that the charges do not meet these requirements or that consultation has not been done as required, he or she can challenge the charges.

Our property disputes team regularly advise clients on service charge issues in both Wales and England. The team also provide training on dealing with service charges generally, along with a more specialist session on consultation procedures.

In this blog we have set out some of the types of issues we frequently advise upon and taken a look at a few recent cases highlighting some typical problems.

1. There is no ability to charge anything unless the lease or tenancy provides for it. So if you want to carry out improvements but the lease only permits a charge for repair, only repairs can be billed (although realistically, most repairs carry an element of improvement which would still be properly billable and so distinguishing between the two may not be obvious).A common problem is a charge for a new service not envisaged at the time of sign up – such as an alarm or warden service. It is important to check that the lease or tenancy permits the new charge failing which a separate agreement or a variation of the lease or tenancy is needed.

2. The rules apply to an assured tenancy as much as a long leasehold interest if the charges are reviewed on the basis of the actual cost of the service or work and if they relate to services, repairs, maintenance, improvements, insurance or the landlords costs of management – this is often overlooked.

3. The charges will not be payable unless the Landlord has supplied a name and address for service AND accompanied the service charge demand with a summary of the tenant’s rights and obligations. The summary of rights is in a prescribed format, and there is a version of this format specific to Wales which must be used.

4. Landlords need to take care who they consult with. This will normally be clear – if it is the immediate tenant who is liable to pay the cost. However, if there is another leasehold interest beneath that of the immediate tenant, and it is that leaseholder who will ultimately pay, then the superior landlord must consult with that sub-tenant. Hence landlords need to be alert to the possibility that there may be another party liable for the cost. This principle was confirmed last month by the Upper Tribunal in relation to a property in London. Camden LBC was the leaseholder under a long lease, but had in turn granted a number of lease interests on the right to buy. The superior landlord proposed to carry out substantial works and consulted with Camden but not with the occupiers of the building, who would ultimately be paying the costs. The tribunal confirmed that they should have consulted with the leaseholders, who as a result were not liable. (Leaseholders of Foundling Court and O’Donnell Court, London v (1) Camden LBC (2) Allied London (Brunswick) Ltd and others [2016] UKUT 366).

5. Landlords can charge costs up front if the lease permits it. On a practical basis, landlords may need to be put in funds before paying for works and leases often permit upfront charges, or the creation of reserve or sinking funds to pay for future or anticipated costs. The Landlord must only do this in a way which is permitted by the lease, and any amount charged in advance must be reasonable (s19(2) LTA 1985).

6. Landlords need to take care that the consultation covers all of the works proposed. This was demonstrated last month in 23 Dollis Avenue Ltd v Vejdani [2017} UKUT 365. The landlord had consulted with tenants but then obtained estimates for works which went beyond the works which were set out in the original consultation exercise. The Upper Tribunal held that the landlord could still make demands for payments in advance on the basis of the estimates but clearly warned that a fresh consultation exercise would be needed before the additional works were done.

7. It is common for costs to increase whilst works are done and it is likely to be impractical to carry out a full consultation afresh (which would require a suspension of the ongoing works). Provided the additional costs could not have been reasonably anticipated, steps are taken to alert the tenants as soon as possible to the additional costs and they are reasonable, then an application for dispensation from the consultation requirements should be successful.

8. Landlords need to look carefully at what they are entitled to include in the charge. A lease may permit a landlord to include administration and legal costs in the service charge (although it is unlikely that a tenancy would). This may be important as if a dispute reaches the tribunal, costs will not normally be recoverable. However, the Upper Tribunal last month confirmed that the lease needs to contain very clear words to enable the landlord to recover costs it had incurred litigating over the reasonableness of a charge with a tenant as it will be slow to imply them. (Sinclair Gardens Investments (Kensington) Ltd v Avon Estates (London) Ltd [2016] UKUT 317). Even if the lease does permit recovery, then s20C of the Landlord and Tenant Act permits the tenant to make an application for the tribunal to determine that such costs cannot be included in the charge.

9. Special rules apply in Wales Increasingly, Welsh Housing Law is developing in a very different way to housing law in England. Some of the changes are major, but some are less obvious. If dealing with property in Wales it is important to know where these differences lie.

The above list is by no means an exhaustive and there are other rules that you will need to be aware of. If we can help you with service charges or with our training products please contact Rebecca Rees on 02920 391162 or alternatively please email: [email protected]

Author bio

Rebecca is a Partner and heads up the Property Dispute Resolution team, having been a member of the team since qualification in 1999, she has built up a reputation as a leading expert in the area.

She has extensive experience of landlord and tenant matters, both commercial and residential, and of property disputes such as boundary issues, restrictive covenants, easements and other property rights, public and private rights of way.

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