Service Charges & Other Issues

Please read the Legal Disclaimer before proceeding

What are service charges?

They are charges payable by the leaseholder to the landlord for the services the landlord is obliged to provide under the terms of the lease. They will be a variable amount from year to year depending on the costs the landlord incurs. These are usually split between leaseholders according to the lease terms. If you pay a service charge, you have the right to ask for a summary showing how the charge is worked out and what it’s spent on and see any paperwork supporting the summary, such as receipts, invoices etc. Your landlord must give you this information – it’s a criminal offence if they do not.

What is ground rent?

You pay ground rent to your freeholder for the land your home is on. Make sure your solicitor checks and tells you about ground rent in the lease when you buy. You do not have to pay ground rent unless your landlord has sent you a formal, written demand for it. They can take legal action if you do not pay after you’ve received the demand. Your landlord can recover unpaid ground rent going back 6 years – they can ask you for the full amount in one go. Your landlord can only increase the ground rent if you agree to the increase or the lease says this can happen.

Do we pay for building insurance?

Your landlord will usually be responsible for insurance of the building and the communal parts of the building or block of flats. The landlord is not responsible to insure the contents fo your leasehold property. The cost of insuring the building will form part of your service charge.

You have a right to ask for a summary of the insurance policy and challenge the cost through a tribunal if you believe it’s unreasonable.

What are reserve or ‘sinking’ funds?

You might have to pay into a fund to help cover any unexpected maintenance or repairs, like replacing the roof, carrying out structural repairs or replacing the lift. Many leases allow the landlord to collect money in advance to create one or more reserve or ‘sinking’ funds.

Leases may sometimes mention how much must be contributed to the reserve fund each year, but usually they do not and it is left to the landlord to decide the amount of the contributions. However, contributions must be reasonable and, because they are just like any other service charges, you have the same right to challenge them at the tribunal if you believe they are unreasonable.

Reserve funds should earn interest because they are generally held for a longer period than day-to-day service charges, and this goes some way to meet increasing budget costs.

You will not usually be able to get back any money you pay into them, for example if you move house.

How are service charge funds and reserve funds held?

When collecting service charges or holding sinking or reserve funds, the landlord is holding leaseholders’ money until they need to spend it in the future for the benefit of the leaseholders – in other words, they are acting as trustee for the money. These funds are held in banks as trust accounts also known as a client account (section 42 of the Landlord and Tenant Act 1987)

What is the Section 20 consultation process for major works?

You have the right to be consulted about charges for running or maintaining the building if you have to pay more than:

  • £250 for planned work
  • £100 per year for work and services lasting more than 12 months

There are steps your landlord must follow when they consult you, known as a ‘Section 20’ consultation. There’s a limit on how much you have to pay if you have not been consulted properly – contact Leasehold Advisory Service, a Government funded, independent advice for residential leaseholders for advice.

Why do we pay service charge?

Each year, you pay the landlord a service charge. This money goes towards the day-to-day running costs of your development and is used to cover items such as buildings insurance, maintenance, repairs, gardening and communal facilities, as well as for any staff that might work at the development. This list is not exhaustive and leaseholders should check their lease for the full details of service charges payable.

Can we ask the landlord for a summary of the service charge account?

Leaseholders, or the secretary of a recognised tenants’ association, have a legal right to ask the landlord for a Summary of service charges accounts (section 21 of the Landlord and Tenant Act 1985). The request must be in writing and can be sent directly to the landlord or to the managing agent. It can ask for a summary of the relevant costs relating to the service charges for the last accounting year or, if accounts are not kept by accounting years, the past 12 months. If a landlord receives a request for a summary of the service charge account, they must provide it within one month (or within six months of the end of the 12-month accounting period, whichever is later).
If the service charge must be paid by the leaseholders of more than four homes, the summary must be certified by a qualified accountant as a fair summary and the landlord must give the accountant adequate accounts, receipts and other documents to support this. If the landlord is a local authority one of their officers who is a qualified accountant may certify the summary, but in all other cases, the accountant must be independent of the landlord.

Do we have the right to inspect documents relating to the service charge?

Leaseholders also have the right to inspect documents relating to the service charge to provide more detail on the summary. Within six months of receiving the summary, leaseholders (or the secretary of a recognised tenants’ association) can write to the landlord to ask if they can access and inspect the accounts, receipts and any other documents that are relevant to the service charge information in the summary and to ask them to provide facilities to copy these.

What happens if our landlord fails to provide a summary or allow access to further information?

If your landlord fails to provide a summary or access to inspect and copy supporting documents following a request from you or the secretary of a recognised tenants’ association, and they do not have a reasonable excuse for this, they are committing a summary offence and are liable for a fine of up to £2,500 (level 4 on the standard scale of fines for summary offences) if they are convicted. The local housing authority has the power to start legal proceedings against the landlord, or you can start them. Local authorities are exempt from prosecution, but registered providers (housing associations) are not.

Can I refuse to pay my service charge?

There are only limited circumstances where you can withhold payment of your service charges without breaching the terms of your lease. These are; Where the demand does not have attached to it (usually attached to the bill for service charges) the prescribed summary of rights and obligations.

What happens if I don’t pay service charge?

If you can’t pay your service charge, or you’ve fallen into arrears, you should contact the landlord or management company of your property to discuss your options for repaying the arrears. If you don’t take steps to deal with the arrears, the freeholder could take court action and you could lose your home. The leaseholder is required by the terms of their lease to pay the service charges and ground rent as determined by their lease in advance of the anticipated year’s expenditure. Any non payment will result in a breach of the lease.

Does the landlard have the power to recover service charges?

The landlord’s power to charge a service charge and your obligation to pay it are governed by the conditions in the lease. The lease is a contract between you and your landlord, and you do not have to pay anything that is not included in your lease. Your lease may contain specific terms which say your landlord must carry out certain work or provide certain services. You only have to pay a service charge for the work or services if the lease contains a clause giving your landlord the power to recover the cost of the work or services from you.

Disputing a charge

You may be able to apply to a tribunal if you pay a charge and you:

  • think it’s unreasonable
  • think the standard of work it relates to is unsatisfactory
  • do not think you should be paying it at all

References to ‘the tribunal’ in this guide mean:

  • the First-tier Tribunal (Property Chamber), in England; or
  • the Leasehold Valuation Tribunal, in Wales.

The general principle of a lease is that the landlord does not have to provide any service which is not covered by the lease, and the leaseholder does not have to pay for anything that is not specifically set out in the lease.

If you are in any doubt about whether you need to pay a charge, check the wording of your lease and get advice, if necessary, from a solicitor who specialises in this area of the law.

Our niche directory will help you find a solicitor who is an expert in this field.

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