How do I challenge a leasehold service charge?
This is a common question amongst leaseholders who either feel they are being over charged or that they are not receiving value for money form their managing agent. In the first instance they need to write to the managing agent stating their concerns and if a satisfactory response is not received the best route is to motivate as many leaseholders as possible to then bring up concerns at a documented residents meeting and if there is enough support they would normally vote to change agent. If there are legal barriers in lace whereby they cannot change agent themselves then they would need to form a Right to Manage Company (RTM) which will then leave them to their own devices to appoint whom they wish.
The provisions within the Commonhold and Leasehold Reform Act 2002, in Section 153, require at the very least :
“A formal demand for the settlement of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges”.
RIGHT TO WITHHOLD
“A tenant may withhold payment of a service charge demand which has been demanded from him if (the requirement to provide the summary) is not complied with in regards to the demand.” “Where a tenant withholds a service charge demand under this section, any provisions within the lease in regards to non payment or late payment of service charges do not have effect to the period for which he withholds it”
The content of the summary reflects the introduction of the First Tier Tribunal (FTT - Property Chamber) in substitution for the Leasehold Valuation Tribunal.
SERVICE CHARGES – SUMMARY OF TENANTS’ RIGHTS AND OBLIGATIONS
This summary briefly lays out your rights and obligations in relation to variable service charges, must by law accompany a demand statement for service charges. Unless a summary is sent with a demand, you may potentially withhold the service charge. Thi summary doesn't give a full interpretation of the law so if you are in any doubt about your rights and obligations you should seek independent advice. Ringley LAw can help you with this.
Your lease does set out your obligations to pay service charges to your freeholder as well as your ground rent. Service charges are the charges for services, repairs, maintenance, improvements, insurance and/or the landlord’s costs of management so long as the costs have been reasonably incurred.
You have the right to ask the FTT to decide whether you are liable to pay service charges and various items contained within. You may make a reasonable request before or after you have paid the service charge. If the tribunal decides that the charges are payable, the tribunal then may also determine :
- whom should pay the service charge and who it should be paid to
- the totalr amount
- the date it should be paid by; and also how it should be paid.
However, you do not have these rights whereby :
- the matter has been agreed or admitted by you
- it has already been referred to arbitration (or has been determined by arbitration) and you agreed to go to arbitration after the disagreement about the service charge or costs arose
- a matter has been determined by a court.
If the lease allows your freeholder to recover costs incurred you may ask the tribunal, prior to which those proceedings were brought, to rule that your landlord may not do so.
Where you seek a decision from the FTT, you will need to pay an application fee and a hearing fee, unless you are exempt. Making this application may incur additional costs, such as professional fees, which you may very well have to pay.
The FTT and the Upper Tribunal (in determining an appeal against a decision of the First-tier Tribunal) has the power to award costs in accordance with Section 29 of the Tribunals, Courts and Enforcement Act 2007.
If your Freeholder :
Propose works within a building or any other premises that will cost you or any other tenant more than £250 per property, or wants to enter into an agreement for works or services which will last greater than 12 months and will cost you or any other tenant greater than £100 in any 12 month accounting period.
Your contribution will be limited to these sepecified amounts unless your landlord has properly consulted on the works or agreement or the FTT agrees that consultation is not required.
You then have the right to apply to the FTT to decide whether your lease should be changed on the grounds that it does not make satisfactory provision in respect of the estimation of service charge payable under the lease.
You then have the right to write to your landlord to request a written summary of the costs which make up the service charges. The summary must be for the last 12 month period used for making up the period relating to the service charge ending no later than the date of your initial request, where the accounts are made up for 12 month periods; or cover the 12 month period ending with the date of your request, where the accounts are not made up for 12 month periods.
The summary must be given to you within 30 days of your request or 6 months of the end of the period to which the summary relates whichever is the later.
You have the legal right, within 6 months of receiving a written summary of costs, to require the freeholder to provide you with reasonable facilities to inspect the accounts, receipts and other documents supporting the summary and for taking copies or extracts from them.
You will have the legal right to ask an accountant or surveyor to carry out an audit of the financial management of the premises containing your dwelling, to establish the obligations of your freeholder and the extent to which the service charges you pay are being used efficiently. This will depend on your circumstances whether you can exercise this right alone or only with the support of others living in the premises. You are advised to seek independent advice before exercising this right.
Your lease may give your freeholder a right of re-entry or even forfeiture if you have failed to pay service charges which are properly due under the lease. However, to exercise this right, the freeholder must meet all the legal requirements and obtain also a court order. A court order will only be granted if you have admitted you are liable to pay the amount or it is finally determined by a court, tribunal or by arbitration that the amount is actually due. The FTT has a very large and broad discretion in granting an order such as this and it will take into account all the circumstances of the case.