Services charges: getting the demands right

Service charges are sums of money payable by leaseholders because of obligations that those leaseholders have which are set out in their lease. There are restrictions on the recovery of service charges, which can mean that service charges may not be payable by the leaseholder until such time as obligations have been fulfilled, or a valid demand served.

 

It is important for anyone seeking to recover service charges (and agents who are instructed on their behalf) to ensure that the contractual and statutory restrictions are met.

 

Contractual Restrictions

Contractual restrictions are based on the lease. The lease is the starting point when dealing with services charges.

When reviewing the lease, there are three key points to consider.

  1. What does the lease say – does it oblige a leaseholder to pay services charges?
  2. Is the demand calculated in accordance with the method of apportionment set out in the lease?
  3. Are there any pre-conditions for payment set out in the lease? Have these been complied with?

Understanding the mechanics of the lease, and implementing the service charge recovery process in accordance with those mechanics is essential.

 

Statutory Restrictions

Not only is it necessary to get the demands right in accordance with what the lease says, statute also places a number of restrictions on the recovery of service charge.

  1. Identification of landlord. Sections 47 and 48 of the Landlord & Tenant Act 1987 prescribe information regarding the landlord that must be contained within any service charge demand.
  2. Rights and obligations. A demand for service charges or administration charges must be accompanied by a summary of rights and obligations for services charges and/or administration charges.
  3. 18 month rule. Within 18 months of incurring a cost, a landlord must demand those costs as a service charge (unless a Section 20B(2) Notice has been served).
  4. Consultation. Where qualifying works are undertaken, or a qualifying long term agreement entered into, the relevant contributions of the leaseholders will be limited unless statutory consultation has been undertaken, or dispensation obtained from the tribunal.
  5. Reasonableness. Services charges are payable only to the extent that they are reasonably incurred, and where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard.

 

How can PM Legal Services help?

Whether you need help reviewing the terms of a Lease, advice on the form and content of your service charge demands, or assistance in undertaking a project of major works, then our team are on hand to advise and assist.