Leasehold Service Charges
What Are Service Charges? What Do They Cover?
Service charges are paid by a leaseholder to cover the cost to the landlord of maintaining repairing or improving the building and its communal areas, such as hallways, gardens, lifts, drainage, guttering and the roof.
Charges will also include cleaning, lighting, redecoration, building insurance, porters – and the cost of any professionals employed by the landlord in connection with the building such as a property management company and an accountant.
Service charge disputes between leasehold tenants and their freeholder/landlord (and their managing agent) are common. Leaseholders often complain of excessive charges and/or poor service; landlords regularly complain of arrears.
Failure to pay service charges can lead to legal action and the charges being added to your mortgage – or in rare cases the forfeit of your lease and the loss of your home.
Do You Have To Pay Service Charges?
Yes – you are legally obliged to pay any service charges that you agreed to when you signed your lease. You must also pay for any price rises (such as index linking to cover inflation) set out in your lease.
Does the landlord have to pay? The landlord/freeholder is usually responsible for the fabric of the building and the proper upkeep of its facilities. They pay for this and pass the costs on to you and your fellow leaseholders in the form of the service charges.
Non-payment of service charges by any leaseholder has serious implications – not just for the landlord but for every tenant in the block. Failure by any one leaseholder to pay will result in a shortfall for the block as a whole.
Sometimes the charges are the same for every leaseholder. In other instances they can be based on the size of each flat (or some other mechanism).
How and when you pay will be written into your lease. It is usually annually or half-yearly but can sometimes be quarterly. Charges can include advance interim payments or they can be in arrears; it all depends on the lease you signed.
But these charges are not a licence for the landlord/freeholder to overcharge you or to employ tradespeople who deliver poor service. As a leaseholder you have legal rights – and we can help you to enforce them.
Definitions Of Service Charges, A Sinking Fund And Administration Charges – What’s The Difference?
- Service charges apply to all the leaseholders in the block and are levied at pre-determined regular intervals to cover all the routine maintenance needed to keep your building’s communal areas neat, tidy and in good repair.
- A sinking fund is a reserve to cover major repairs that do not occur often but are very expensive when do. These can include a new roof or major lift repairs. Often the sinking fund is topped up by collecting extra money as part of the regular service charges. It is a wise precaution because sooner or later every block will face a very large repair bill of some kind.
- Administration charges are different – they are one-off irregular charges applied to individual flats and leaseholders (not everyone in the block) to cover the cost of specific matters (such the legal cost of recovering money owed to the landlord).
Service Charge Disputes – Your Rights
Every service charge demand must contain the landlord’s name and address – not just their property managing agent’s details.
There must also be a summary of leaseholders’ rights and obligations (such as your right to apply to a tribunal if you are not happy with the service charges).
If the service charge demand that you have received does not fulfil these legal criteria then you may be within your rights to withhold payment until that information is provided. Please note, this may not always be advisable.
Service and administration charges are well regulated in England and Wales. Leaseholders are protected by the Landlord and Tenant Act 1985 and subsequent legislation.
Furthermore, there is a developing case law, which can make this whole area of law particularly complex.
Maintenance Work And Contracts: Your Freeholder/Landlord Must Consult You In Advance
There are specific regulations setting out the requirements for consulting with the leaseholders. Failure to comply can be costly for a freeholder or manager.
Your freeholder or manager must consult you and your fellow leaseholders if they are planning:
- certain works where the service charges will be more than £250 for any one leaseholder
- certain agreements or contracts for any service for more than 12 months where the cost to a leaseholder is more than £100 per year.
Recoverability And Reasonableness Of Demands
This is covered primarily by the Landlord and Tenant Act 1985. A freeholder or property manager must ensure that:
- They have provided the specific statutory information – and also the prescribed information about the leaseholder’s rights and responsibilities.
- They have demanded the costs within the correct timescale. The demand must be issued within 18 months of incurring the cost or the landlord must serve a notice within this time outlining the costs incurred and the leaseholder’s requirement to contribute.
- The costs they are seeking to recover fall within the terms of the lease. This can be complex because some leases are outdated and can be inconsistent with current maintenance practices, health and safety requirements and planning provisions.
- The costs are reasonable. There are two parts to the legislation – one covering payment in advance, the other payment in arrears.
Disputing Service Charges At A Tribunal
Unhappy with the charges facing you? As a leaseholder you can apply to an independent tribunal to determine your liability to pay and/or the reasonableness of the charges.
In England, this is the First-tier Tribunal (Property Chamber) and in Wales it is the Leasehold Valuation Tribunal.
On demand in a correct form, leaseholders are also entitled to:
- inspect accounts and other documents
- details of insurance cover
- summaries of the leasehold service charges.
It is important to take legal advice before going to a tribunal because the law can be complicated and the process can be costly.
We can advise you on quicker, easier and more cost-effective ways of settling a dispute to your satisfaction.
Fed up with your landlord’s unreasonable service charge demands? You may wish to investigate buying the freehold at your block or exercising your Right To Manage. Both these options can enable you and your fellow leaseholders to take back control at your block.
Get Expert Legal Advice
Worried about unfair or excessive service charges? Book a free chat with one of our residential leasehold property solicitors.