Service charges for retirement housing

If your lease requires you to pay variable service charges, you are entitled to know how these service charges are made up and to see the accounts on which they are based.

You are entitled to a summary of all service charge income and expenditure within 6 months of the end of the accounting year.

The summary must contain details of all costs incurred by the landlord in the provision of the services and show how they are or will be charged to the leaseholders. The summary must show details of payments made by the leaseholders already and those still outstanding, what has actually been paid by the landlord and what monies remain in the service charge account.

If the leaseholder is unhappy about any of the information shown in the summary, the leaseholder or the secretary of the residents’ association can require sight of the accounts, receipts and other documents used in making up the summary. The ARHM code of practice requires the landlord or manager to arrange, on an annual basis, to make these supporting documents available at a convenient time for inspection by leaseholders on their scheme.

Section 42 of the Landlord and Tenant Act 1987 requires the landlord to hold service charges monies in a trust account.

Many leases for retirement properties contain a clause providing for a “deferred service charge” on sale of the property. This charge is intended to fund future works by building up a sinking or reserve fund through accumulated receipts from sale proceeds. Traditionally such funds are used to pay for items of major expenditure such as roof repairs or lift replacement and to lessen the impact of paying in one year.

The amount of the charge should be set out in the lease, usually as a percentage. The amount payable could be from 1% upwards and perhaps increase the longer the flat is owned.

The law requires that the leaseholder must be consulted before the landlord carries out works above a certain value or enters into a long-term contract (one for more than 12 months) for the provision of services.

Where the landlord proposes to carry out works of repair or maintenance which would cost the individual leaseholder more than £250, or to enter into a long-term contract which would cost the leaseholder more than £100 a year, they must, before proceeding, formally consult all those expected to contribute to the cost. This has the joint effect of giving notice of the landlord's intentions to the leaseholders and seeking their views on the proposals.

If the landlord fails to carry out the consultation process in accordance with this consultation procedure, they will simply be unable to recover their costs from the leaseholders beyond the statutory limits of £250 or £100 per flat.

In cases where the landlord considers the works to be too urgent to wait for the lengthy consultation procedure, they still cannot just proceed with them, but must apply to the Tribunal for a dispensation from the need to serve the notices.

Find out more: Section 20 consultation

The legislation provides protection to leaseholders in that demands for service charges must be reasonable. You should not refuse to pay the service charges just because you consider them to be unreasonable.

The First-tier Tribunal has wide-ranging powers to resolve disputes on service charges and to interpret the requirements of the lease in relation to the leaseholder’s liability to pay. The Tribunal can determine whether the charge is payable, the amount that is payable, by whom, to whom, when it is payable and the manner in which it may be paid.

The Tribunal will hear the evidence presented and then make a determination in writing on the issues.

It is most important that any application be supported by evidence and not just opinion that the charge is not reasonable. This can be on the basis that the works or services charged for are unnecessary, overpriced, of poor quality, insufficiently supervised, or any other reason, but it must be capable of a reasonable degree of proof. This will normally require the assistance of professional advisers, a solicitor and a building surveyor.

Although the procedure can be complex and subject to fees, the ability to challenge the service charges is a considerable power for the leaseholder.

Find out more: challenging a service charge