Why leaseholder payment plans must come with a caveat

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Since March this blog has dealt with the ways that landlords can tackle the problem of tenants building up Covid-related rent arrears. But what about leaseholders who find themselves in financial difficulties? With England going back into lockdown this week, despite the extension to the furlough scheme it’s inevitable that some flat owners will struggle to pay their service charge this winter.

We have been clear from the start of the pandemic that service charge obligations must be met by leaseholders. Withholding payments not only carries legal implications and could result in forfeiture, but it also means that at a time when the cleaning and maintenance of buildings has never been more important, these services may become unaffordable and therefore unavailable if payments cannot be collected from residents.

However, of course we understand that we are all living in very difficult times and anyone who is facing genuine hardship deserves a sympathetic ear. Speaking at an industry webinar last month, a leading property lawyer reported that there has been an increase in property managers and freeholders being approached by leaseholders asking for a payment plan to be put in place to help them meet their service charge obligations. This is hardly a surprise and it may be possible for flat owners to come to an arrangement to alleviate their financial problems – at least in the short term.

But this comes with a caveat. It is important for leaseholders to understand that their landlord may not have the option of waiving the service charge. Service charge payments are held in trust so the landlord has a fiduciary duty to consider, as well as the fact that there may be an enforcement clause in the lease governing payment. Depending on the terms of the lease, a payment plan could work but it would have to be carefully drafted and put in writing. Landlord loans are another option but, again, these may be constrained by the regulations around service charge accounting.

So if you can't pay your service charge, contact your landlord or management company as soon as possible. If you don't take action and find a way to deal with any arrears, you could end up in court. In the worst case scenario you could lose your home. You and your landlord will need sound legal advice from a lawyer specialising in property-related issues. We have a team of specialists at Ringley Law who have stacks of experience of service charge issues. So if you are experiencing problems with paying or collecting service charges, contact us today.

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02/11/2020
Author : Maryanne Bowring

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