Leasehold Service Charges Explained

When paying a service charge, the items you are responsible for paying for are usually listed within your lease. When living in a leasehold flat within a block, this lease may also state the share of the total charge of the block that is required, and when payment is needed. Any advance service charge payment must be of a reasonable amount.

Your landlord is permitted to operate a ‘sinking’ or ‘reserve’ fund within your lease. This can be used to cover expensive items that may be required and a reasonable amount must go towards this fund.

It may also be necessary to pay towards these services even if you do not utilise them. For example, contributing towards lift maintenance whilst living on the ground floor or towards warden costs whilst living in sheltered housing.

Service charges, ‘sinking’ or ‘reserve’ fund contributions and any interest on these are held on automatic statutory trusts. This means the money belongs to the contributing leaseholder(s), and can be used only for authorised service charge purposes. Therefore, if landlord insolvency occurs, the landlord’s creditors have no access to these funds.

A landlord has an 18 month time period within which to recover service charge costs. He or she must communicate these costs to relevant leasehold owners within this time frame, and is unable to recover costs after the time period has lapsed.

What are your rights in relation to service charge demands?

  • You have the right to obtain a full summary of service charge costs.
  • On receipt of this service charge summary, you have the right to inspect accounts, receipts and any other documents on which the service charge summary is based.
  • You have the right to be consulted regarding major works and/or long term agreements.
  • You have the right to challenge the validity of any service charge.
  • You have the right to challenge the standard of works (current or proposed) or    services.

 

What should I expect from the landlord when receiving a demand for service charges?

From 1st October 2007, service charge demands must be accompanied by a summary of your rights and obligations in relation to the charges. The service charge demand must contain the information prescribed in Regulations.

Do I have the right to request service charge information?

A landlord can be asked to provide a summary of costs on which service charge is based. This request can be either from an individual leaseholder or the secretary of a recognised tenants’ association. The landlord is required to give this information once only for the same time period.

A landlord must provide a cost summary for the previous service charge accounting year. Where accounts are not kept by accounting year, this summary must be for the 12 months preceding the request.

This summary should explain:

  • How the costs relate to the service charge demand, or if they will be included in a later demand
  • Any items for which your landlord did not receive a service charge demand for payment during the accounting period
  • Any items for which a service charge demand was received and for which no payment was made during the service charge accounting period
  • Any items for which a service charge demand was received and for which payment was made during the accounting period; and
  • Whether any of the costs relate to works for which an improvement grant has been or is to be paid.

The summary should be provided within one month of the request or within six months of the summary accounting period- whichever is the later.

If the service charge is payable by tenants of more than four properties, a qualified accountant needs to certify the summary as fair. It must also be sufficiently supported by accounts, receipts and any other documents provided to the accountant.   . This accountant must be independent of the landlord. However, if the landlord is a public sector body, the summary may be certified by one of their officers who is a qualified accountant.

Can you inspect the service charge accounts or receipts?

A landlord can be requested, in writing, to produce accounts, receipts and other supporting documents. This request can come from a leaseholder, a service charge paying tenant or the secretary of a recognised tenants’ association. The request must be made within six months of receiving the landlord’s summary. The landlord is required to give opportunity for inspection and copying documents for two months. This opportunity must commence no more than one month after the request date.
A landlord is not permitted to charge for document inspection but can make a reasonable charge for providing copies. Where a tenant also has an appointed surveyor, they may inspect documents free of charge- though under some lease terms the landlord may be entitled to incorporate these inspection facilities within his management costs. The appointed surveyor also has the right to take document copies, subject to reasonable copying charge.