service charge
📖 What is service charge? Meaning and definition
Service charges are a common feature in leasehold properties, particularly flats, where tenants contribute to the upkeep of shared areas or the building's structure. The lease agreement between the landlord and tenant specifies what costs can be recovered through service charges. These charges can cover a wide range of expenses, from routine maintenance and cleaning of common parts to major works like roof repairs or external redecoration.
Tenants often have the right to challenge the reasonableness of service charges. For proposed future works, a First-tier Tribunal can determine whether these works are, in principle, recoverable through the service charge provisions of the lease. However, the actual costs incurred for such works will still be subject to a 'reasonableness test' under Section 19 of the Landlord and Tenant Act 1985 once they are carried out.
In some cases, tenants may apply to the Tribunal under Section 20C of the Landlord & Tenant Act 1985 to exclude certain costs incurred by the landlord from being factored into the service charge. This means that even if the landlord incurs costs, the Tribunal can decide that these specific costs should not be passed on to the tenants through the service charge. The Tribunal can also refuse consent for an applicant to withdraw such an application, ensuring it is determined.
Leasehold agreements can sometimes contain terms regarding service charge contributions that a tenant might consider unfair. In such situations, a tenant may appeal to modify a term of an existing lease, for example, concerning their liability to service charge contribution on a fixed percentage basis, as seen in cases heard by the Upper Tribunal (Lands Chamber).
📋 Requirements
- The costs must be specified as recoverable through service charges in the lease agreement.
- For future works, the Tribunal can determine if they are recoverable in principle.
- Incurred costs for works must pass a 'reasonableness test' under Section 19 of the Landlord and Tenant Act 1985.
- Tenants can apply under Section 20C of the Landlord & Tenant Act 1985 to exclude certain costs from being considered for service charges.
📝 Procedure
- Landlord applies to the Tribunal for a determination on whether proposed future works are recoverable through service charges.
- The Tribunal issues directions, which may require the landlord to specify the estimated total service charges.
- The Tribunal assesses whether the proposed works are in principle recoverable based on the lease provisions.
- Once costs are incurred, they are subject to a reasonableness test under the Landlord and Tenant Act 1985.
- A tenant may apply to the Tribunal under Section 20C of the Landlord & Tenant Act 1985 to exclude specific costs from the service charge.
💡 Examples
- A landlord applied to the Tribunal to confirm that proposed future repairs to a block of flats were costs that could be recovered from tenants through their service charges.
- A tenant sought to prevent the landlord from including the legal costs of a previous Tribunal application in the service charge payable by the residents.
- A tenant appealed a decision regarding their lease, arguing that their fixed percentage contribution to the service charge was unfair and should be modified.
- The Tribunal determined that while proposed works were recoverable in principle, the actual costs would later need to be reasonable under the Landlord and Tenant Act 1985.
📚 Legal basis
- Landlord and Tenant Act 1985
- Leasehold Reform, Housing and Urban Development Act 1993
- Tribunals, Courts and Enforcement Act 2007
❓ Frequently asked questions
What exactly can a service charge cover?
A service charge can cover various expenses related to the property, such as maintenance, repairs, insurance, and the landlord's management costs, provided these are explicitly stated in your lease agreement.
Can I challenge the amount of a service charge?
Yes, you can challenge the reasonableness of service charges. For proposed works, a Tribunal can determine if they are recoverable in principle, and actual incurred costs must pass a 'reasonableness test' under the Landlord and Tenant Act 1985.
What is a Section 20C application?
A Section 20C application under the Landlord & Tenant Act 1985 allows a tenant to ask the Tribunal to exclude certain costs incurred by the landlord from being included in the service charge, meaning you wouldn't have to pay for them.
What happens if my lease has an unfair service charge term?
If you believe a term in your lease regarding service charge contributions is unfair, you may have grounds to appeal for a modification of that term, as seen in cases heard by the Upper Tribunal (Lands Chamber).
Do I have to pay for proposed works before they are carried out?
The recoverability of proposed future works through service charges can be determined by a Tribunal in principle. However, the actual costs incurred for these works will still be subject to a reasonableness test once they are completed.
What is the 'reasonableness test' for service charges?
The 'reasonableness test' under Section 19 of the Landlord and Tenant Act 1985 means that any costs incurred by the landlord that are passed on through service charges must be reasonable in both the amount and the standard of work or services provided.