Challenges in Collecting Service Charges for Small Blocks

Small blocks of flats often face difficulties in collecting service charges, especially if the leases were created decades ago, when it was common for the freeholder to handle the bills and recover costs later. The issues with old leases can complicate the process, and attempting to demand service charges outside the lease's terms may lead to non-recovery in court.

The Importance of Leaseholder Agreement in Small Blocks

In small blocks, it's crucial to ensure that all leaseholders agree to contribute their share of service charges, repairs, and maintenance costs. Without consensus, maintaining the block and covering necessary expenses becomes a challenge, especially for large-scale repairs or redecorations without a reserve fund.

Financial Hardship and the Impact on Service Charge Collection

When leaseholders face financial difficulties, getting everyone to pay their fair share becomes even harder. As there is often no reserve fund built up for cyclical repairs, the lack of funds and agreement can delay essential works, leaving maintenance projects stalled or unaddressed.

Changing the Lease to Facilitate Service Charge Collection

If leaseholders can't agree on the service charge collection system, Section 37 of the Landlord and Tenant Act 1987 offers a solution. This provision allows the leaseholders, with a majority agreement, to amend the lease to include an effective service charge clause and establish a reserve fund. This change can prevent individual leaseholders from having to fund repairs out of pocket.

Costs and Process of Changing the Lease

Changing the lease is a relatively affordable process, with fees typically ranging from £500-£750. For self-managed blocks, the Ringley Group offers services for just £225 per lease for members, making it easier for leaseholders to update their leases and ensure smoother service charge collection and maintenance budgeting.

Additional Clauses to Consider for Lease Modification

When modifying a lease, it's important to consider adding clauses that are often missing from defective leases. These include the ability to charge interest on service charge arrears, the approval of improvements by a majority vote, the creation of a reserve fund, and the inclusion of managing agent fees in the service charge. Additionally, freeholders can offer lease extensions to 999 years as an incentive to encourage participation.