Landlords are usually permitted under the terms of many of their leases to recover from the leaseholder payments that are neither ‘rent’ or ‘service charges’ but as this area was not regulated this made them a) open to abuse as freeholders could charge what they liked beyond the interpretation of ‘reasonableness’ and b) difficulties for the leaseholder in challenging those charges as the FTT (formerly the LVT) had no jurisdiction to deal with them. Parliament again had to redress another problem relating to the balance of power between leaseholders and freeholders and so they introduced new protections for the leaseholder. So under Schedule 11 (s158) of the Commonhold and Leasehold Reform Act 2002, such charges come under a new legal category, that of administration charges. . These will either be ‘fixed’, which means they are calculated according to a formula or ‘variable’ Additionally, since the 2002 Act came into force it has become possible to levy variable administration charges for breaches of a lease, such as late payment, even if the lease does not specify this.
When advising a leaseholder of an administration charge it is necessary to ensure that the leaseholder also receives a notice of the Tenant’s Rights and Obligations (Administration Charges).
As with the service charges, when the administration charge is variable the fee levied must be reasonable and under s158 of the 2002 Act, leaseholders have the right to ask the First Tier Tribunal whether they are payable. The request can be made before or after payment because the FTT doesn’t presume that simply because the charge has been paid that the issue of reasonableness doesn’t arise. If the Tribunal determines that the charge is payable it may also determine:
- Who should pay it;
- Who it should be paid to:
- The amount;
- The date it should be paid by;
- How it should be paid.
On the other hand, if the administration charges are fixed, then the only way to challenge them is to apply to the First Tier Tribunal for a lease variation on the grounds that either the calculation formula is unreasonable or the administration charge specified in the lease is unreasonable.