Advice Note - Service Charge Rights

Leaseholders have important protections under Landlord and Tenant legislation and landlords are required to serve a summary of those rights when issuing service charge demands. Leaseholders can challenge unreasonable charges; challenge poor or unnecessary workmanship; and have the right to be consulted about major works and long term agreements.

As the leading trade body for managing agents, ARMA plays an important role in educating and informing leaseholders about their rights and responsibilities.

Here we take a look at some of the existing rights in relation to service charges and what leaseholders can do to challenge them.

Is there a limit to how much landlords can charge leaseholders?

Leaseholders are given important protection under Section 19 of the Landlord and Tenant Act 1985. This rules that service charges are only payable to the landlord to the extent that they are reasonable. So if a leaseholder feels the amount they are paying is unreasonable, they have the right to take their complaint to the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation tribunal in Wales LVT. Service charges may increase from time to time along with inflation or with increased management demands of the building, but any increase in service charge payments instigated by the landlord must also be reasonable.

What can leaseholders do if they feel the work done on their property is unnecessary or unsatisfactory?

Leaseholders may be concerned about the quality of the work being carried out on their building. Section 19 offers even more protection: service charges are only payable for the provision of services or works that are of a reasonable standard. So if leaseholders are unsatisfied with the level of service they are getting for their service charge payments, once again they have the right to take their landlord to an Tribunal.

If leaseholders feel that work being carried out on their building is unnecessary, they also have the right to take their landlord to the Tribunal under S.27a of the Landlord and Tenant Act 1985. This right will help them to determine whether or not the cost of the disputed works is in fact payable. It is also important to bear in mind that Landlords or managers named in the lease can only recover costs of expenditure for those items specified in the lease.

How can people find out if they are being charged fairly?

Section 21(Landlord & Tenant Act 1985) gives leaseholders the right to ask their landlord (usually via the managing agent) to supply a summary of relevant costs making up the service charges for the last accounting period. This is an important right for leaseholders if they feel they are being charged too much or for items that are not recoverable. Importantly, they can go further under Section 22 which gives leaseholders the right to inspect any receipts or invoices that support the figures obtained under a Section 21 request.

Do leaseholders get a say on major works carried out on their property?

If a landlord wishes to carry out major works to the building or enter into a long-term agreement with a contractor or supplier, they must consult with the leaseholders. Under Section 20 of the Landlord and Tenant Act 1985, landlords must consult with the leaseholders if: they are proposing works that will cost any one leaseholder over 250; or 100 if they propose to enter into a long term agreement with a contractor for a period of more than 12 months. The first stage of the Section 20 consultation serves advance warning and, importantly, allows leaseholders to put forward their own preferred contractor or supplier.

• A residents association can be formed which gives leaseholders added power as it allows them to maximise their rights under the terms of their lease. This will also put them in a strong position in the event of disputes with landlords, who will also be obliged to consult with them on management issues, the appointment and performance of the managing agent and service charge issues.
• Leaseholders can also get together to buy the freehold of their own block and form a Resident Management Company, effectively becoming their own landlord. This is known as collective enfranchisement.
• The Right to Manage can be an important way of empowering leaseholders who are unhappy with the way their landlord is managing their block. RTM effectively allows leaseholders to take control without having to prove mismanagement on the part of the landlord. But exercising RTM is not a decision that should be taken lightly.