Freeholders are legally obliged to maintain their leasehold properties, the costs of which are generally then recovered in the form of a service charge from the leaseholders. However, such charges often cause arguments, with some landlords charging unfair amounts which leaseholders are reluctant to pay.
Tenants with a short lease will usually have the cost of maintenance included in their rent – but for long leaseholders a separate maintenance charge is usually involved. Freeholders have the same duties in both cases but tend to recover costs differently. It’s not unusual for leaseholders to become annoyed by the level of service charges, not least because despite the operation to pay, they have so little control over the sums spent.
Included in the service charge will usually be:
• A management fee reflecting the administrative work done by the freeholder. This is unlikely to vary greater between years but can be significantly higher if major works involving multiple contractors have been required.
• Direct costs which cover the actual expenditure on the property. These can be routine costs such as the payment of insurance premiums or electricity bills, or exceptional costs such as roof repairs or lift maintenance which can require large payments.
The service charge must be reasonable – and if it is unreasonable, the leaseholder will not be obliged to pay it. All charges should therefore correlate to work done on the property so that leaseholders can see that it is fair and such detail is required under the Landlord and Tenant Act. Furthermore, if the cost of the work exceeds £250, it can only be reclaimed if it was urgent and if the following steps are taken:
• Two or more quotes for the work from impartial companies are obtained
• The quotes are made available to leaseholders either in the post or by displaying them for all to see
• A notice is served to leaseholders informing them of the nature and duration of any work and asking for the thoughts of leaseholders
• All replies from leaseholders are considered and objections are responded to by addressing points individually
Again, failure to fulfil these requirements will result in the leaseholder not being obliged to pay the charge under section 20 of the Act.
There is also crucial protection for leaseholders in terms of late charges. Freeholder must ask for payment of the service charge within 18 months of carrying out the work, otherwise payment will not be compulsory on the part of the leaseholder. It is possible though for freeholders to effectively extend that period by informing the leaseholder of the proposed charge but not actually billing them until later on.
Leaseholders can also approach the Leasehold Valuation Tribunal if they believe that the service charge is unreasonable – and if they wish to choose a different insurer to the one nominated by the freeholder they can ask the LVT to make their own nomination.
It’s not unusual for both freeholders and leaseholders to struggle with much of the law and regulations surrounding service charges, not least because so many different rules apply – and that’s the advice of a solicitor specialising in the service charge and service charge disputes can be so valuable.
Tim Bishop is senior partner of Solicitors Bonallack and Bishop – with a team of leasehold property specialists dedicated to lease extension, lease enfranchisement and service charge disputes. For more information, visit their website at http://www.leaseextensionuk.co.uk or call them on 01722 422300.
