Residential Service Charges

There have been recent cases which emphasise the importance of ensuring that the terms of the lease are properly considered in relation to service charge collection and that statutory requirements are met.  The Upper Tribunal has also made interesting observations on apportionment of service charges within a lease.

1.         A clause provided for management to include employing, amongst others, “other professional persons as may be necessary or desirable for the administration of the building” but did not specifically mention legal costs.  Did this mean that the costs of solicitors in advising could be recovered?   The Upper Tribunal found that the terms of the particular lease did not cover legal fees even if the engagement of solicitors and recovery of legal fees may be desirable. As with every issue concerning service charges, the starting point is always the Lease itself.  This is a useful reminder that the Courts and Tribunals will  adopt a restrictive approach to the interpretation of a lease including for legal charges.  (Greening –v- Castlenau Mansions Ltd)

2.         Similarly, where a lease provided that a Certificate by the Lessor’s surveyor was a pre-condition for any liability to pay final service charges a certificate from a Chartered Accountant was not considered sufficient.  In those circumstances, no service charges were payable as the pre-condition had not been satisfied.   (Akorita –v- Marina Heights (St Leonards) Ltd.)

3.         Proper attention must be given also to the statutory requirements.   Where a summary of the tenant’s rights and obligations, which must be sent with any demand for service charges was sent 11 days after the demand itself it did not represent “sufficient accompaniment”.  In addition sending a photocopy of the 2007 Service Charge Regulations did not constitute compliance.  A specific document entitled “Services Charges – Summary of Tenants Rights and Obligations” and a specific text had to be sent to meet the statutory requirements.  Tingdene Holiday Parks Ltd –v- Cox

4.         The need to properly consult with tenants has been emphasised by the Court of Appeal.  When the landlord sends a second notice under the major works consultation procedure, it should include estimates and particular information together with the Landlord’s response to the Leaseholders written observations.   The landlord did not provide a summary of the observations or his response, did not make all the estimates available to the Leaseholders and cut short the 30 day consultation period by advising the Leaseholders that he had instructed the one contractor whose details he has sent.  The Leasehold Valuation Tribunal found the Leaseholders had been causing substantial prejudice.   In those circumstances it would never be appropriate for the LVT to grant dispensation regarding that notice.  On appeal the The Upper Tribunal agreed with the LVT’s decision and whilst noting that the failures for the most part were minor and did not cause significant prejudice and it was not appropriate to consider the financial consequences arising from the decision.   As a result the landlord recovered only £1250.00 against the £270,000 sought.  (Daejan Investments Ltd –v- Benson).

5.         Finally, the LVT have considered the Leaseholders’ liability to pay a “fair and reasonable proportion” of service charges when a flat had been converted from a three bedroom property to a two bedroom property.  The service charges originally were apportioned on bed spaces with each bed space representing a fixed percentage of 5% of the service charges.  When the Landlord gave consent to the alterations,  it was a condition that the Leaseholders original liabilities remained the same.  As the alterations the Leaseholder made to his flat meant there was one less bedroom, there was a shortfall in the total service charges recovered. The Landlord wanted to amend the method of apportionment of service charges to percentages as a result.  The  Landlord therefore asked the LVT firstly to determine that the amended percentages (to take account of the reduced number of bedrooms) was a reasonable method of calculating the service charges and secondly that the lease should be varied by changing the fixed percentages.  It was argued that apportioning service charges by bed space was wrong as the leaseholders could change the configuration of their living rooms and bedrooms,  the difference between a single and a double bedroom was arbitrary and a studio flat had combined  living and sleeping space.   The LVT found that the method adopted was a fair and reasonable one even if not the only one.   The Upper Tribunal found that the landlord who had given the licence for the alterations must determine the fair and reasonable proportion by reference to the state that the flats were in prior to the alterations being carried out.  The President also found that an application for determination of the service charges payable must relate to an actual amount that the Leaseholder was paying, not the principle on which the service charges were calculated.  The LVT does not have jurisdiction to interpret leases unless they relate to a specific amount of money payable.   (Mehra –v- Citywest Homes Ltd)

Jeremy Teall