Darren Bagnall from Manage Your Block looks at Service Charges and how they work.
Service charges are an integral element of buying a leasehold property. Becoming a leaseholder gives you ownership of your unit (flat) within a shared building for the length of the lease term. The building itself remains under the ownership on the landlord who demands a service charge from all leaseholders.
These charges cover the cost of maintenance, necessary improvements, utilities, management fees and insurance. Under new legislation, service charges will be outlined in a standardised format in the hope that this will allow leaseholders to better understand where their money is being spent, and to challenge charges that seem inappropriate.
If you receive a service charge statement that you believe to be unjust, or if you think the works you’re being charged for were not carried out to the correct standard, there are steps you can take to challenge your landlord and potentially reduce the costs.
What Should a Service Charge Statement Contain?
Firstly, service charge statements are only payable if they include the following information:
- The landlord’s name and address (not that of the agent, if there is one)
- A summary of “leaseholders’ rights and obligations”
If the demand doesn’t contain these details, leaseholders have a legal right to withhold payment until the demand is reissued correctly.
Reviewing the Basic Details
The second step is to carefully review your service charge statement. It should outline the charges you are being asked to pay. For each line item, check the following:
- Dates: Ensure the charges cover the correct period.
- Descriptions: Each charge should have a clear description of what it covers.
- Amounts: Check if the amounts seem reasonable.
Under section 20B of the Landlord and Tenant Act 1985, there is an 18-month time limit for landlords to claim back costs. This means that service charges cannot be recovered from leaseholders more than 18 months since the costs were incurred. Case law suggests that costs are deemed “incurred” when the landlord either pays them or becomes liable for payment, e.g. by receiving an invoice.
Landlords can avoid this pitfall by writing to leaseholders within the 18-month time limit to let them know that the costs have been incurred. They must detail the amounts and let leaseholders know that they will be recovered in due course.
Understanding the Breakdown of Charges
Understanding what you are being charged for is crucial. Service charges typically include fees relating to:
- Maintenance: For cleaning, gardening, and general upkeep of communal areas.
- Repairs: For completing any necessary repairs in communal areas.
- Management: Fees charged by the managing agent for their services.
- Utilities: Costs for communal electricity, water, and other utilities.
- Reserve or Sinking Fund: Contributions towards a fund for future large-scale repairs or maintenance.
If major works are required (works that will cost each leaseholder more than £250) then the Section 20 process must be followed. This is another section of the Landlord and Tenant Act 1985. The process involves inviting leaseholders to have their say in who is appointed to carry out the works and to see any estimates before a decision is made. Ultimately, the costs will be recovered as a service charge and must therefore be “reasonable”.
Comparing Your Demand with the Lease Agreement
If you suspect that unfair charges are being incurred, it’s best to first compare the charges listed on your statement with what is outlined in your lease agreement. Your lease should specify what can and cannot be charged. If there are discrepancies, this could be a basis for challenging the demand.
Requesting Further Information
If any charges seem unclear or unjustified, you have the right to request further information. You’ll need to write to your managing agent or landlord, asking for a detailed breakdown of the charges. They should provide:
- Invoices and receipts as proof of the costs incurred
- Contracts for services being charged back to leaseholders
- A clear explanation of why the charges were necessary
Challenging Unfair Charges
If you still believe the service charges are unjust, or if you believe the works were not carried out to an acceptable standard, you have the right to challenge them.
Your first step should be to speak to your landlord or managing agent to come to an informal agreement. If that doesn’t work, you can make a formal complaint via their complaints procedure- if you choose to do this, make sure you file all correspondence carefully.
If you’re still unhappy, free advice can be sought via the Leasehold Advisory Service, a Government-funded organisation. They can provide advice on how best to challenge your demand. They may advise that you take the legal route. To do this, you’ll need to apply to the First-tier Tribunal (if you’re based in England), or the Leasehold Valuation Tribunal (if you’re in Wales).
The tribunals are independent bodies who will be able to decide if the service charge demand is reasonable and chargeable, in part of in full. You may wish to seek professional advice before progressing down the legal route- an experienced leasehold or property law solicitor would be best, as they can gain a full understanding of your unique situation before advising appropriately.
Preventing Future Disputes
To help avoid future disputes, there are steps you can take. You can attend all leaseholder meetings to make sure you’re in the loop with plans for the building and have an understanding of how those plans may affect your service charges. You can also request annual statements of the building’s accounts so you can keep track of expenses incurred.
Maintaining open communication with other leaseholders, your managing agent and/or landlord is the best way to avoid any disputes. Early discussions around costings and fees can prevent misunderstandings and nasty surprises.
Manage Your Block aren’t here to tell you how to run your block of flats, but we can provide you with highly specialised software to make the management of your block much easier. Call us for more details on 0333 577 9070 or email info@manageyourblock.co.uk.