If you are living in a property under a long lease you are likely to pay ground rent and service charges. The amount of ground rent will be set out in the lease.
Service charges can be demanded by the freeholder to carry out his/her obligations set out in the lease. This may include repairs, maintenance, insurance or management costs. The charges are not fixed at a certain level and can vary each year.
- service charges cannot be claimed for any item of expenditure unless specified in the lease
- a freeholder may be able to demand service charges before the actual works begin but this can only be done if specified in the lease
- your lease may allow for the creation of a reserve fund (also known as a sinking fund), under which the freeholder can request a certain sum to be put aside each year for future major works
- your lease should clearly state how your service charge proportion is calculated
The Landlord and Tenant Act 1985 regulates the amount of service charges that freeholders can demand and in cases of dispute may override the provisions of a lease. The act states that service charges need only be paid by the leaseholder if they are reasonable.
If a freeholder demands service charges that are not reasonable, the leaseholder is not obliged to pay the unreasonable part of the charges. It is often difficult to work out what a reasonable charge is and if this cannot be agreed between the parties it will often have to be resolved in court.
There are steps that you can take to challenge the freeholder if you feel that the amount of service charge is too high:
- if all leaseholders act together it is likely that the freeholder will pay more attention to your grievances. You should check whether there is a tenants' or residents' association and if not, there should be one set up as soon as possible
- keep a written record of all complaints, to cover any inadequacies in the services that the freeholder is obliged to provide and for which service charges have been demanded
- contact the freeholder to query the level of service charge. Under the Landlord and Tenant Act 1985, you can make a written request for a summary of costs incurred in performance of the freeholder's obligations under the lease. The freeholder is obliged to reply within a specified time and failure to do so is a criminal offence, with a fine of up to £2500
- after receiving a summary of costs, you have the right to inspect accounts, receipts or any other documents referred to in the summary
- you can also take extracts or make copies of receipts. Non-compliance by the freeholder is a criminal offence
After having taken the above steps, if you still feel that the amounts are unreasonable, you should write to the freeholder or freeholder's agents advising that you dispute the service charge and try to negotiate a figure acceptable to everyone.
If no agreement can be reached, the reasonableness of the service charges will have to be determined by the county court or by the Leasehold Valuation Tribunal, Residential Property Tribunal Service, 10 Alfred Place, London WC1E 7LR. Tel: (020) 7446 7700.
You can also withhold payment of part of the service charges, as long as you have paid a reasonable amount. You should always get independent legal advice if you intend to withhold payment as you may be providing the freeholder with grounds to take eviction proceedings against you.
The Commonhold and Leasehold Reform Act 2002 requires your freeholder to provide you with a yearly statement of your service charge account. This will show what you have paid and how it has been spent. Failure to provide this will give you a legal right to withhold payment of the service charges.