Landlord and Tenant Act 1985
The Landlord and Tenant Act 1985 is the first of the five main Acts of Parliament providing the framework for the rights of leaseholders under the terms of their leases. Provisions relating to service charges come under the following sections:
- s1: (disclosure of landlords identity): leaseholders have the right to ask for the address of the landlord if the service charge demand doesn’t contain it. it. The managing agent has 21 days to reply.
- s2: (disclosure of directors and corporate landlords) leaseholders also have the right to ask for the name and address of every Director and the company Secretary.
- s3: (duty to inform tenant of assignment of landlord’s interest): Should there be a change of freeholder then all leaseholders have the legal right to receive notice of such a change (to again include an address).
- s18: (meaning of service charges and relevant costs) but note that fixed service charges are not service charges for the purpose of this Act.
- s19: (limitation of service charge costs and ‘reasonableness’). When the service charges have been paid in advance the amount payable must be reasonable. Such payments must be clearly presented against actual expenditure and the landlord must a) repay any excess paid or b) deduct it from subsequent charges as the lease directs once the costs have been incurred. The issue of ”reasonableness’ has three components: 1) the service charge must be reasonably incurred, 2) it must be reasonable in amount and 3) the services are of a reasonable standard.
- s20: (limitation of service charges: consultation and requirements).
- s20b: (limitation of service charges: time limit on making demands).
- s20za: (consultation requirements: supplementary) deals with the power of the FTT to dispense with the above consultation requirement.
- s20c: (limitation of service charges; cost proceedings) has been expanded by preventing the freeholder from putting the costs of any legal proceedings through the service charges even if the lease allows it.
- s21: (service charge information): If there are more than 4 flats in the block, leaseholders have the statutory right to request a summary of all relevant costs incurred by the landlord for works and services that make up the service charges. The reasonable cost of the summary is properly chargeable to the service charge account and it is required to be prepared by a qualified accountant. The summary is required to distinguish between the following:
a) items/costs for which no payment has been demanded of the landlord within the period to which the summary relates;b) items/costs for which payments has been demanded by the landlord but not paid within that period; and
c) for which the landlord has paid within that period.
The summary is also required to include the total of any money received by the landlord for service charges and still standing to the credit of the tenants paying these charges at the end of the period and any costs which relate to works for which grants have been paid or will be paid and show how they have been reflected in the service charge demands
- s22 (request to inspect supporting accounts): Note that this and s21 are intended to allow leaseholders to receive a summary of service charge expenditure incurred in the last accounting period, and then be allowed to inspect the accounts and documents that support that summary. However, s21a (withholding service charges) is yet to be implemented. So leaseholders are not allowed to withhold payment should these rights be withheld.
- s27a (liability to pay service charges: jurisdiction) deals with lessee applications to the FTT over the ‘reasonableness’ of service charges.
- s28 (meaning of qualified accountant) who is defined as a registered auditor who will state that
a) in his opinion a fair summary complying with the requirements of subsection 5 of s21 and
b) being sufficiently supported by accounts, receipts and other documents which have been produced to him. Note: these can usually be equated to accruals and creditors respectively but there are cases where tribunal have held different interpretations.
- s29 (meaning of “recognised tenants association”) is where a residents association may ask the freeholder for recognition but if the freeholder does not grant it, leaseholders may approach the First Tier Tribunal for recognition from there instead. More on Residents Associations can be read here.
- s30a (rights of tenants with respect to insurance). Any leaseholders paying a service charge which includes an amount payable either directly (or indirectly) for buildings insurance, under the Schedule to this section can request (in writing) a summary of the current insurance policy. They are entitled to see the policy and any associated documents at the office or request that copies be sent to their home address, or be made available for collection from the office. If they are members of a recognised Residents Association, the Secretary can request it on their behalf. It must be provided within 21 days from the day on which the request is received by the landlord.The summary must show:
- The amount for which the property is insured;
- The name of the insurer;
- The risks that the policy insures against.
Within 6 months of receiving the summary, leaseholders (or the Secretary) may request that facilities be available whereby they can not only inspect the full policy and associated documents but they can take copies and extracts. Compliance is required within 21 days from the day on which the notice is received.
The managing parties will need to arrange access to where the policy is held (which cannot be charged for). Proof of payment must also be made available for inspection. Alternatively leaseholders can request (in writing) for them to be sent or to be made available for collection.
Note: If the latter option is requested then a ‘reasonable’ fee can be charged under administration charges and the policy holder must respond within 21 days of receipt of the request.
An overview of the second Act of Parliament concerned with block management, that of the Landlord and Tenant Act 1987 can be found here.