The Landlord and Tenant Act 1985 sets out the basic ground rules for service charges, defining what is considered a service charge, setting out requirements for reasonableness and for prior consultation for leaseholders. Prior consultation is required in respect of certain costs and any costs incurred by the Landlord must be charged within 18 months, or the leaseholder at least has to be notified in that time.
Service charges are issued regularly by Landlords so that they can recover the costs they have incurred in providing a service to a property. The way in which this is organized is set out in the Lease document itself. The charge covers such things as the cost of general maintenance and repair, insurance, lighting and cleaning of common areas. Before proceeding with the purchase of the property it is imperative that the Lease is explained fully by the conveyancer, so that the leaseholder is aware of what the service charge includes and doesn’t include, and what contributions they will be expected to make. These also may include the costs of employing a managing agents, and any contributions to any reserve fund.
It is important to realise that there are no obligation to pay for anything other than what is provided for in the Lease.
Both Landlords and Leaseholders have the right to ask a Leasehold Valuation Tribunal (LVT) whether a charge (or proposed charge) is reasonable. An application can be made before or after the charge has been paid. There are a number of questions that the Tribunal will ask, and these may include;
- Were the works or services provided to a reasonable standard
- What were the landlord’s procedures for assessing these costs
They may also ask for clarification on the following:
- Whether the service charge is payable under the terms of the Lease
- To whom the service charge is payable to, and who is responsible for paying it
- When it should be paid, and how
As both parties bear their own costs, it is important that legal advice is obtained prior to an application being made.
It may also be possible to form a group together with other residents to make an application to purchase the freehold, and thus take over the responsibility of maintaining the property yourselves. This has to be done on a majority basis, and would mean completing all documentation as the Landlord would. This would mean that a Company would need to be formed, with each resident owning a share, and being collectively responsible for arranging the insurance, maintenance and future works to the building as a whole. It would result in no individual Landlord being involved directly or indirectly with the property, and therefore hopefully avoid any future dispute.