1/ Service charges
2/ Applying to Tribunal
3/ The Law
Leaseholders are seriously disadvantaged in money disputes with freeholders. They can spend a fortune on lawyers disputing unfair service charges, but they won’t get any more than a token sum back in repayment of their legal costs. Freeholders, on the other hand, can recover their legal costs: either via the service charges, which all will pay, or from the individual litigant leaseholder in the form of administrative charges. Worse, freeholders can sometimes regain these costs even if they do not win the case, or only win in part.
LKP’s cardinal rule of all leasehold litigation is, therefore, PAY FIRST, FIGHT SECOND.
We repeat this several times a week to leaseholders who contact us. No matter how egregious the charges, or how they have been inflated by the freeholder’s debt collectors, pay the bill in total. And then fight the costs rigorously in the tribunal.
If you withhold money wrongly and are found to be in breach of lease, the freeholder / landlord will almost certainly get his costs.
Freeholders repeatedly win their disputes with leaseholders because of this unfair cost regime. Almost all are highly experienced commercial practitioners who know a good deal more about the leasehold game than do individual lease owners.
When a leaseholder defies them and withholds service charges – worse still refuses to pay ground rent – freeholders can use the full opportunities of their legally privileged position.
Here is an example. The Wellcome Trust is the second biggest charity in the world, which owns 58 acres of Kensington’s “stucco ghetto” in prime central London. Its commendable charitable aims did not prevent it from spending £114,000 to get back a mere £6,000 owed by a leaseholder litigant in person. This grotesque and disproportionate expenditure on legal armament would make no sense in a commercial dispute to regain a relatively small sum. But it makes perfect sense in the leasehold game, as the freeholder knew it would get its legal costs. Indeed, everyone in the court room – the case lasted four separate days – would have known from the first ten minutes that a leaseholder car crash was unfolding and that the unfortunate woman withholding service charges was going to be utterly crushed. This was in spite of the fact that on the first day of the hearing the service charge debt that was demanded actually came down from the £8,247 originally demanded. So the leaseholder, who was Czech and unfamiliar with English law, was along the right lines for around a quarter of her dispute. That was an irrelevant consideration when the court agreed that the freeholder could have full legal costs.
Only the involvement of LKP, which interested both The Guardian and the BBC in this case, prevented forfeiture. Making a woman destitute and homeless, and taking possession of a flat worth £800,000, was something that the Wellcome Trust was not prepared to do, given the certainty that LKP would have ensured the widest publicity. In the event, the leaseholder had to sell up and her final reckoning with the Wellcome Trust was closed down with an NDA (a Non-Disclosure Agreement).
We offer this as a cautionary tale to all leaseholders who do not follow LKP’s hard and fast rule of PAY FIRST, FIGHT SECOND. LKP has noted that when leaseholders have been wise and paid first, freeholders tend to employ considerably less expensive legal fire-power in the subsequent tribunal case. In these circumstances, there is a prospect that they will have to pay the legal costs themselves.
Sadly, in fighting these disputes leaseholders are very likely to be on their own. In exceptional circumstances, it may be possible to ask help from the Bar Council pro bono service – legalese meaning ‘free’. MPs are one of the conduits for this and LKP is the secretariat of the All Party Parliamentary Group on leasehold and commonhold reform which has 173 members (August 2019). However, leasehold pro bono advice is rare as leaseholders do own assets of value; sometimes considerable value. Sir Peter Bottomley obtained pro bono representation for pensioner litigants in a retirement site in his constituency in this case:
And a Southwark local authority leaseholder was offered pro bono legal representation when her lower tribunal victory over a £24,000 major works scheme was challenged by the leading landlord and tenant QC in the country when it came to an appeal. More on local authority leasehold here
1/ Service charges
1.2 What are service charges?
Virtually alone in the world, England and Wales sells flats – and recently the wheeze spread to new leasehold houses – as leasehold tenancies. This is all leasehold means: long tenancies. It is not real home ownership, and the Communities Seelct Committee recommended in early 2019 that the term “lease rental” be used instead of home ownership when these properties are transacted.
This would be a very sensible idea. Leaseholders are “home owners” when it comes to selling this form of tenure, but “tenants” when it comes to the law and any disputes.
There is also considerable controversy about freeholders (the landlord; although the landlord can also be a management company, even a residents’ management company, embedded in the lease). Leasehold in its modern form came about in Victorian times whereby aristocrats sold leases to their land to the new rising middle class to build homes, without ceding the land. This is a highly controversial arrangement, and has been for well over a century: the Hansard debates on leasehold in the 1880s are very little different to what one reads today. The Victorian thriller writer Wilkie Collins and the Liberal politician Lloyd George were both exercised about leasehold. The obvious injustice was that someone could build a leasehold mansion and then have to hand it over when the lease to the land was up.
Freeholders, who employ some of the most expensive publicists and lobbyists in the country, would have it that they are the long-term custodians of communal buildings like flats. Leaseholders are short-term occupants, who typically move on after six or seven years. But these freeholders almost never do any paying out. LKP argues that they are irrelevant speculators in people’s homes, which are completely unknown to most of the world’s jurisdictions. They own the income streams to communal buildings, trade them as assets, and frequently they are owned offshore.
Pension funds were attracted to the regular, legally enforcible income stream of ground rents in residential leasehold, but in recent decades we have see fevered interest from private equity speculators who hide their beneficial ownership behind nominee directors. All the owners of the freeholds in the £1.7 billion Long Harbour fund are hidden. And many other investors do the same. After all, leasehold disputes involve people’s homes, with high emotions involved and considerable reputational risk for investors who act aggressively.
The Grenfell fire tragedy exposed the fiction of residential freeholders as responsible long-term custodians as dangerous cladding had to be removed from many sites. In vain did a succession of government ministers urge these “custodians” to “do the decent thing”, in ministers’ words, and pay to remove combustible cladding on “their” tower blocks rather than pass the costs on to innocent leaseholders. Not one freeholder did so. Indeed, the property tribunal has ruled in five different cases that when it comes to cladding removal and fire marshal costs, the leaseholders pay. As it happened, the then Communities Secretary James Brokenshire then took the bold decision to put aside GBP 200 million for removal of Grenfell AMD cladding. His most senior civil servant took the most unusual decision to make public her reservations about this policy. We are now, in August 2019, in the curious position that private flats clad in Grenfell / AMD cladding might get public subsidy to replace it, while an even greater number of other sites with flawed but slightly different cladding are not included. LKP is anticipating further decisions in the courts laying the cost to replace this at the door of leaseholders.
The whole issue has shown the utter pointlessness of having unnecessary freeholders at all. The legal position of combustible cladding is that it is the fault of either developers who put it up or government regulators for approving it. In England and Wales, leaseholders somehow have to persuade the freeholders to legally challenge this on their behalf. But where is the profit in that, freeholders will ask. Flat owners in Scotland also have this material on their homes, but being the real owners of the building they have a direct legal relationship with the developers who built the site.
So, Taylor Wimpey, to its credit, decided to pay to remove the cladding at Glasgow Harbour, without argument. The whole sorry saga of Grenfell cladding and how to deal with it is reported here:
Anyway, after some examples of the practice of service charges, here is the theory:
Landlords charge service charges to recover their costs in providing services to a building. The way in which your service charge is organised (for example, what it covers and how it is worked out) is set out in your lease or tenancy agreement. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, porters, and lighting and cleaning shared areas and so on. The charges may also include the costs of management services provided by the landlord or by a professional managing agent, and contributions to a reserve fund.
The lease will set out details of what the landlord can and cannot charge for and the proportion of the charge that you will have to pay. The landlord, or sometimes a management company named in the lease, provides the services and you and any other leaseholders pay for them. The landlord will “generally” make no financial contribution to the services, but sometimes they have to pay for the services before recovering their costs from leaseholders.
Some landlords charge for giving you permission to make alterations or for sub-letting. These are administration charges (see below).
1.2 Fixed or variable service charges?
The Leasehold Advisory Service claims that, originally, the costs of services were included in the ground rent payments. In fact, ground rents are for no service whatsoever. Some old leases still allow a fixed charge to be charged, regardless of the actual costs to the landlord. However, most service charges are based on the actual or estimated cost of the services, and will change from year to year. These are known as variable service charges.
1.3 Service charge structure
Generally, the landlord must provide certain services under the lease, and can charge a service charge for doing so.
The lease will usually give the dates of the service charge period and how often the payments are due. The service charge period is often a year, but payments may be due every six months or every three months, or in some cases may be charged after the costs have been run up. Your lease will usually set out the percentage or proportion of the service charge that you must pay. For example, you may have to pay a share of the charge based on the square footage of the flat as a proportion of the whole building. Or, your share of the charge may be based on a simple percentage of the total service charge or, in older leases, it may be based on the rateable value of the flat as a proportion of the rateable value of the whole building. Sometimes the lease just states that each leaseholder must pay a ‘fair’ or ‘just’ proportion of the service charge. If different groups of tenants benefit from different services, there may be different service charges for the different groups.
The lease will say whether leaseholders must make advance payments and, if so, whether these are based on the previous year’s cost or an estimate of the cost in the year to come. There will often be a final charge due at the end of the year when the actual costs are known, if these are not covered by the payments you (and any other leaseholders) have made. In this situation, the landlord will send you a bill asking for your share of the shortfall. If the total payments leaseholders have already made are more than the actual costs, depending on what it says in the lease the extra money may be:
- used to reduce next year’s charge;
- refunded; or
- paid into a reserve fund
Leases in a block usually provide for advance payments of service charges. In theory, landlords have to buy all the services before they can recover their costs from the leaseholders. In practice, the landlords ask for service charges before they have to pay for work and services (themselves). At the end of the financial year, when the landlord knows the actual costs, leaseholders either pay any shortfall (if the actual costs are more than the service charges paid) or refund the difference to leaseholders (if the actual costs are less than the service charges paid). If the lease does not allow the landlord to ask for service charges in advance to pay for major work, they may have to borrow enough money to pay for the work, and the lease may allow them to recover the costs involved (for example any interest charged) through the service charges.
1.4 Limits on service charges
Service charges can go up or down without any limit, but the landlord can only recover costs which are supposedly “reasonable”. leaseholders have the right to apply to the tribunal to challenge any service charges that they believe are unreasonable.
When considering buying a leasehold flat, it is important to find out what the current and future service charges are likely to be. Your solicitor will normally ask the seller for this information (and about imminent major works). Given how problematic leasehold properties can be – and even the Leasehold Advisory Service claims 57% of leaseholders regret their purchase – it would be a good idea to identify the residents’ association and make inquiries directly of the existing leaseholders.
1.5 What are reserve or ‘sinking’ funds?
Many leases allow the landlord to collect money in advance to create one or more reserve, or ‘sinking’ funds. The purpose of these funds is to build up a sum of money to cover the cost of irregular and expensive work such as decorating the outside of properties, carrying out structural repairs or replacing the lift.
There are usually two reasons for maintaining a reserve fund. The first is to make sure that all tenants contribute to the cost of major work, not just those who are living in the building at the time it is carried out. The second is to even out the yearly charges, avoiding large one-off bills, and to help leaseholders budget for these costs. However, even if there is a reserve fund in place, this will not always be enough to cover the full cost of major work. If this is the case, leaseholders are likely to have to make up the balance through the service charge.
The lack of a reserve fund in local authority blocks explains, in part, why private leaseholders get hit for often eye-watering demands for major works schemes.
Leases sometimes say how much must be contributed to the reserve fund each year, but usually they do not and it is left to the landlord to decide the amount of the contributions. However, contributions must be reasonable and, because they are just like any other service charges, leaseholders have the same right to challenge them at the tribunal if they believe they are unreasonable. Many sites, such as most retirement sites, build up reserve funds with exit or event fees, charged when a property is sold on.
There is more information on holding service charges and reserve funds in the paragraph ‘Holding service charges – trust accounts’ (below).
If you sell your flat, you will not be able to claim back any contributions that you have paid to the reserve fund (the Leasehold Advisory Service says that some leases may allow this; there may be some, but LKP has never encountered this).
1.6 Power to recover service charges
It is important for leaseholders to understand that landlord’s power to charge a service charge and leaseholders’ obligation to pay it are governed by the conditions in the lease. The lease is a contract between you and your landlord, and you signed it, with legal advice, when you bought the leasehold tenancy. Leaseholders do not have to pay anything that is not included in the lease.
The lease may contain specific terms which say that the landlord must carry out certain work or provide certain services. Leaseholders only have to pay a service charge for the work or services if the lease contains a clause giving the landlord the power to recover the cost of the work or services. If the costs can be recovered through a service charge, the lease should say whether leaseholders should pay this before or after the work is carried out or the services are provided, and whether it can be paid as regular payments, perhaps once a year or on a set day every three months, or whether it should be charged once the costs have been run up.
Leases are often appallingly drafted and each one is different. LKP persuaded government to revise upwards its former estimate of 2.5 million leasehold properties to 4.1 million. In fact, the figure for England and Wales is certainly higher: there are 1.1 million leasehold houses alone.
The lease may be very specific in its wording, setting out quite precisely which work or services your landlord can charge for. Or, the clauses may be very general and simply refer to the costs of repairing and maintaining the structure of the building.
Leaseholders can generally assume that a service charge will apply and that it will cover the costs of repairing and maintaining the fabric of the building, the lift, the boilers and so on, as well as cleaning, lighting and maintaining shared areas. What else the service charge covers will depend on the type of services provided. In some cases, the service charge is worked out simply by referring to the landlord’s costs in meeting their obligations, as set out in one of the schedules to the lease.
There are a number of issues to consider if the lease allows the landlord to apply a service charge to recover costs.
Improvement work: Leases in the private sector do not state that leaseholders must contribute to costs of work to improve the building. However, leases from local authorities and housing associations often do contain such clauses. This is vital point when deciding whether you must contribute towards the costs of a section 20 major works scheme.
Management costs: The fact that the landlord, or a managing agent acting on their behalf, manages the building does not automatically mean that they can recover management charges. They can only do this if the lease says they can. Your lease may state that the landlord can recover a percentage of their costs, or may just refer to a ‘reasonable’ amount.
Legal costs: As with management costs, these must be included in the lease. If your lease allows your landlord to recover legal costs through a service charge, they are likely to include the cost of recovering arrears. LKP has not encountered a lease where the freeholder’s legal costs cannot be recovered.
Caretaker and house manager: If your lease allows your landlord to recover the costs of employing a caretaker or porter, it should be clear what is included in the service charge. For example, it should state whether or not the caretaker or porter will live on the premises, and if they will, whether their accommodation must be provided rent-free. The cost of a live-in caretaker or porter will normally be higher than if they don’t live on the premises.
Retirement house manager are a cause of controversy. Older retirement sites often have a live-in manager; newer ones have visiting managers. VAT has, as of 2019, be added to their salaries which leaseholders must pay.
It is a further source of controversy why leases were issued in 2009 to hundreds of retirement house managers’ flats by the Tchenguiz interests, which own the bulk of the retirement freeholds. These ended up in the ownership of Peverel, now FirstPort, the property manager that the Tchenguiz interests owned until it was pitched into administration after the arrest of Vincent and Robert Tchenguiz in February 2011 by the Serious Fraud Office, on wrong evidence.
Why these flats were issued with leases when they were part of the sites’ common parts and paid for by the pensioner leaseholders is not explained. Nor why FirstPort now owns them. They have now been largely sold on. These issues have not been challenged in the courts at any point.
As house managers have moved towards visiting services, many of these flats have been sold off, with leaseholders compensated for the absense of service with £10,000 paid into the site’s contingency fund. Unfortunately, these dubious transactions have not been challenged in the courts. But there have been complaints, as here:
Heating, cleaning, garden maintenance and alarm systems: Again, if your landlord is obliged to provide these services under the lease, then leaseholders must pay for them. These services should be included in your lease. In some cases, this may be done simply by referring to the landlord’s obligations, as set out in one of the schedules to the lease.
The general principle of a lease is that the landlord does not have to provide any service which is not covered by the lease, and the leaseholder does not have to pay for anything that is not specifically set out in the lease.
If you are in any doubt about whether you need to pay a charge, check the wording of your lease and get advice. Do NOT simple refuse to pay and take the consequences, as that could end up very expensive.
1.7 The need to be reasonable
Usually a lease simply allows the landlord to recover their costs for maintaining and repairing the building (including any management costs), and for general upkeep, from the leaseholders. They can claim back any money they have spent, but cannot normally make a profit from managing the building.
The law also expects the landlord to behave in a ‘reasonable’ manner regarding spending on the building. The Leasehold Advisory Service says:
“The landlord has a long-term interest in maintaining the condition and value of their investment … You may have a much shorter-term view if you only intend to live in the property for a few years. These different viewpoints often lead to dispute.”
We strongly disagree. The freeholder is only interested in the income streams. The condition of the building, or the quality of life of those living in it, have no bearing on these revenue streams. LKP has encountered some landlords who are hyper active in maintaining the building and generating work, for which they receive fees. Contrariwise, we have also encountered landlords who allow a building to deteriorate to the point where only the landlord will buy the leases.
A landlord does not usually have to keep the costs to a minimum. However, the law states that service charges must be ‘reasonable’ and, where costs relate to work or services, the work or services must be of a reasonable standard.
It is worth pointing out here – and the Leasehold Advisory Service most certainly won’t – that the speculator who has bought the freehold has paid around 1 to 3 per cent of the collective value of all the leases in that building. So, with minimal investment the freeholder makes all the decisions and, if he is minded to do so, generates a substantial income way beyond simply the ground rents.
2/ Applying to the tribunal
Both you and your landlord have a right to ask the tribunal whether a charge, or a proposed charge, is reasonable. However, the law does not define what is ‘reasonable’. The tribunal will consider the evidence presented and then make a decision on the matter.
Leaseholders and freeholders can apply to the tribunal for a decision on whether a service charge is reasonable, regardless of whether it has been paid. To repeat: LKP’s advice is always to PAY FIRST, FIGHT SECOND. The application can relate to costs the landlord has already paid for work, services or other charges, or can relate to an estimate or budget.
The tribunal is likely to ask the following questions.
Considering the circumstances, was it, or would it be, reasonable for the landlord to have to pay the costs (with the leaseholders money, obviously)?
- was the standard of the work carried out or services provided of a reasonable standard (or will it be)?
- what are the landlord’s procedures for assessing and controlling the costs, including supervising the project?
- You and your landlord can present evidence on any of these matters and question the evidence given by the other person.
The tribunal may also decide:
- whether the service charge must be paid under the lease;
- who must pay the service charge and who they must pay it to;
- the date on which the service charge must be paid; and
- how the service charge can be paid (for example, by direct debit or standing order).
Full details of the procedures and requirements for applying to the tribunal are set out in this advice guide Application to the First-tier Tribunal (Property Chamber).
Application Form – For a determination on liability to pay service charge and reasonability of service charge:
3/ The law
The Landlord and Tenant Act 1985 sets out the basic rules for service charges. It defines what is considered a service charge, and sets out requirements for making sure costs are reasonable and for landlords to consult leaseholders before entering into any agreement for work or services which would lead to a service charge.
Section 18 (1) of the act defines a service charge as ‘an amount payable by a tenant of a dwelling as part of or in addition to the rent
which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management; and
the whole or part of which varies or may vary according to the relevant costs.’
The costs of the services, repairs, maintenance, improvements, insurance and management must be reasonable, and the tribunal may decide whether they are.
Please note: the definition in section 18 (1) does not overrule the lease. The item or service must still be included in the lease for your landlord to be able to charge for it.
3.1 Demands for service charges
Demands for service charges which you must pay to your landlord must be in writing and must contain your landlord’s name and address. If your landlord’s name and address are not on the demand, you do not have to pay the service charge until you are given this information. (The name and address of the managing agent will not count unless they are also the landlord.) If your landlord’s address is outside England or Wales, the demand must contain an address in England or Wales which you can use to send notices to your landlord.
This does not apply if you must pay the service charge to a management company named in the lease, rather than directly to your landlord. The demands must still be in writing, but they do not need to contain your landlord’s name and address.
Normally the lease will allow landlords to ask for the service charge before work is carried out or services are provided, but there will be times when the demands are issued afterwards. In these cases, your landlord must issue the demand within 18 months of when they become liable to pay for the works undertaken or the services provided, which may be either by the presentation of an undisputed invoice from the contractor or supplier or actual payment of the invoice. If they issue the demand later than this, they cannot recover the costs unless they serve a notice on you within 18 months of the landlord becoming liable to pay for the works undertaken or the services provided, stating that they have run up the costs for the work or services and that you will have to contribute to those costs by paying a service charge (section 20B of the Landlord and Tenant Act 1985).
Here is an example from April 2020:
With any service charge demand, landlords must provide a formal summary of rights and obligations (the content and form is set by Parliament). Here is the Leasehold Advisory Service’s version of this
3.2 Holding service charges – trust accounts (section 42 of the Landlord and Tenant Act 1987)
When collecting service charges or holding sinking or reserve funds, the landlord is holding leaseholders’ money until they need to spend it in the future for the benefit of the leaseholders – in other words, they are acting as trustee for the money. By law, if several leaseholders must contribute to the same costs under the terms of their leases, the money they pay must be held in trust and ideally in one or more accounts.
In trust, needs some clarification: billions of pounds in service charge accounts are unregulated and unprotected. Some freeholders’ managers will simply pool the funds of different blocks into one account. The distinction between one site and another is simply an internal, unscrutinised account.
Protecting leaseholders’ funds is a key aim of LKP, and forms part of the statutory regulation of managing agents which we have demanded, as has ARMA (Association of Residential Managing Agents).
3.3 Summary of service charges accounts (section 21 of the Landlord and Tenant Act 1985)
Leaseholders, or the secretary of a recognised tenants’ association, have a legal right to ask the landlord for a summary of the service charge account. The request must be in writing and can be sent directly to the landlord or to the managing agent. It can ask for a summary of the relevant costs relating to the service charges for the last accounting year or, if accounts are not kept by accounting years, the past 12 months.
Download a template for requesting a written summary of relevant costs relating to the service charges under section 21 of the Landlord and Tenant Act 1985:
If a landlord receives a request for a summary of the service charge account, they must provide it within one month (or within six months of the end of the 12-month accounting period, whichever is later).
The summary should show:
- how the costs relate to the service charge demand, or that they will be included in a later demand (if this applies);
- any items which the landlord did not receive a bill for during the accounting period;
- any items which the landlord received a bill for but which they didn’t pay during the accounting period;
- any items which the landlord received a bill for and which they paid during the accounting period; and
- whether any of the costs relate to work for which an improvement grant has been or will be paid.
If the service charge must be paid by the leaseholders of more than four homes, the summary must be certified by a qualified accountant as a fair summary and the landlord must give the accountant adequate accounts, receipts and other documents to support this. If the landlord is a local authority one of their officers who is a qualified accountant may certify the summary, but in all other cases, the accountant must be independent of the landlord.
3.4 Rights to further information (inspecting accounts and receipts) (section 22 of the Landlord and Tenant Act 1985)
Leaseholders also have the right to inspect documents relating to the service charge to provide more detail on the summary. Within six months of receiving the summary, leaseholders (or the secretary of a recognised tenants’ association) can write to the landlord to ask if they can access and inspect the accounts, receipts and any other documents that are relevant to the service charge information in the summary and to ask them to provide facilities to copy these.
Download a template for requesting to inspect supporting accounts, receipts and so on under section 22 of the Landlord and Tenant Act 1985
The above right applies even if the summary was provided as end-of-year statement of account, rather than in response to a formal request for a summary under section 21 of the Landlord and Tenant Act 1985.
Landlords must provide facilities for inspecting the documents within one month of the leaseholder’s or secretary’s request, and these facilities must be available for two months.
Leaseholders have other rights to investigate the service charges and the way the building is managed – the Leasehold Reform Act 1993 gives them the right to ask for a management audit, and under the Housing Act 1996 they have the right to appoint a surveyor.
3.5 What happens if a landlord fails to provide a summary or allow access to further information?
If your landlord fails to provide a summary or access to inspect and copy supporting documents following a request from you or the secretary of a recognised tenants’ association, and they do not have a reasonable excuse for this, they are committing a summary offence and are liable for a fine of up to £2,500 (level 4 on the standard scale of fines for summary offences) if they are convicted. The local housing authority has the power to start legal proceedings against the landlord, or you can start them. Local authorities are exempt from prosecution, but registered providers (housing associations) are not. LKP would be curious to see any examples of prosecution, because to date we have never heard of such a thing.
By law, landlords must consult leaseholders before carrying out work above a certain value or entering into a long-term agreement for providing services.
This is a complex procedure which is discussed in detail in the following guides.
Section 20 Consultation for Private Landlords, Resident Management Companies and their Agents
Section 20 Consultation for Council and other public sector landlords
4 Conclusion: the landlord decides how to spend service charges
The general principle is that the landlord decides how to spend the service charges, which is the leaseholders’ money. This applies in all situations where flats are managed centrally and still applies if the leaseholders themselves manage their building (for example, where there is a residents’ management company). However, the law protects people who pay service charges and sets the following responsibilities which the landlord must meet.
Charges must be reasonable. (You can challenge them at the tribunal if you don’t believe they are.)
The landlord must consult you before starting any work which will cost you more than £250 (qualifying work), or entering into a long-term contract which will cost you more than £100 for any leaseholder in any accounting year (a ‘qualifying long-term agreement’).
Demands for payment must include the landlord’s name and address and be accompanied by a summary of your rights and obligations.
Service charge funds must be held in trust.
Landlords must account for all spending during the year by providing a summary of relevant costs if you or the secretary of the recognised tenants’ association asks for this in writing. After the landlord has provided the summary, you or the secretary can inspect the relevant documents.