News story

Challenging service charges in blocks of flats

With the onset of the credit crunch people are becoming ever more conscious of their spending. In particular an increasing number of flat owners are taking a closer look at their service charge demands.

The Leasehold Advisory Service (LEASE) is funded by the government to provide a free legal advice service for all flat owners. Visit them at www.lease-advice.org or call them on 020 7374 5370. Here the LEASE team answers some of the most frequently asked questions on service charge demands.

Where do I start?

Upon receipt of your service charge demand check it carefully. It must show the landlord's name and address. In addition it must be accompanied by a summary of tenant’s rights and obligations. The demand is not payable until both requirements have been complied with.

Check the lease and then check again!

You cannot be charged for items not referred to in the lease so read it carefully. In particular, if improvements are being proposed to the building ensure the service charge provisions of the lease allow the freeholder to then carry out and charge for such works. An obligation on the freeholder to maintain and repair the main structure and common parts does not mean they can build a bin store where one did not previously exist.

I am being charged for a management fee – is this allowed?

Only if the lease allows! As a flat owner it is crucial for you to be familiar with the terms and conditions of the lease so you know for what you can and can’t be charged.

Getting more information

You are entitled to request a written summary of costs incurred during the last accounting period from your freeholder. They must send it to you within six months of the end of the last accounting period or within one month of the request - whichever is later. If there is a defined accounting period it will be set out in the lease otherwise it will be the 12 months immediately prior to the date of the request for the summary.

You can then send a written request to the freeholder asking to inspect the accounts and receipts within 6 months of receiving the summary. Failure to comply with either request is a criminal offence and the freeholder risks being prosecuted and fined by up to £2,500. If, however, your freeholder is a local authority then they are exempt from these provisions.

So you believe the charges are unreasonable - what next?

Service charges must be reasonable but there is no legal definition of ‘reasonableness’ - it is a question of fact in each case. Clearly if you can put together persuasive evidence showing that you have been charged significantly over the ‘going rate’ then the freeholder’s chances of proving a charge is reasonable will be more difficult.

First write to the freeholder or their managing agent raising your concerns and state why you believe that the charges are unreasonable. If this is unsuccessful consider using a mediation service such as the one provided by LEASE as an alternative non-litigious method to resolve the dispute. If, however, the freeholder is uncooperative then you can make an application to the Leasehold Valuation Tribunal (LVT) asking them to determine the reasonableness of the charges.

If the LVT finds costs were unreasonably incurred then they may be disallowed in their entirety. If the work was done to an unreasonably low standard then the LVT’s decision is likely to depend on the effectiveness of the works carried out as some work of an unreasonably low standard may still have a useful and quantifiable value.

If I go to the LVT will I incur any costs?

A fee of between £50 and £350 is payable when you submit the application and is levied according to the total cost of the disputed charges. A further fee of £150 is payable if the matter proceeds to a hearing. Further, if the lease allows the freeholder to charge for legal costs you must ensure that the LVT hears your arguments under Section 20C of the Landlord and Tenant Act 1995 as to why the freeholder should not recover their legal costs through the service charge clause. The LVT will have regard, for example, to any attempts to use mediation or any offers of settlement.

I have paid my service charge demand can I challenge it?

Yes, so long as you have not specifically admitted or agreed that the charges are payable.

(News story added: 21 September 2009)