There are only two officially recognised ways in which service charges (and administration charges) can be withheld. One is where the service charge demand has been sent without containing the address of the landlord under s1 of the Landlord and Tenant Act 1985 (disclosure of landlords identity) and under which leaseholders have the right to ask for it. The managing agent has 21 days to reply. Under s2 of the same Act (disclosure of directors and corporate landlord) leaseholders also have the right to ask for the name and address of every Director and the company Secretary. This is also amended in s47 of the Landlord and Tenant Act 1987 (landlords name and address to be contained in demands for rent etc) and s48 of that same Act (notification by landlord of address for service of notices), regardless of whether leaseholders only deal with a managing agent. Payment can be withheld until the landlord complies and any provisions in the lease regarding non-payment or late payment do not have effect as long as the landlord remains in breach.
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) under s3 of the Landlord and Tenant Act 1985 (duty to inform tenant of assignment of landlord’s interest).
No Summary Of Rights And Obligations
The other legally recognised reason to withhold payment of service charges is if, under s21b of the Landlord and Tenant Act 1985 (notice to accompany service charge demands) and s153 of the Commonhold and Leasehold Reform ACT 2002 (notice to accompany service charge demands) a demand for service charges is not accompanied by a summary of the rights and obligations of the leaseholder.
CAN’T PAY OR WON’T PAY?
There are two distinct categories for leaseholders who fall behind in their service charge payments:
1: Some can’t pay because they have hit financial difficulties resulting from a number of issues such as being made redundant, suffering ill-health or both. Falling into arrears in this kind of situation is theoretically no different to falling behind in paying a mortgage or credit card. You agree to take on the responsibility to pay service charges as part of the contract to purchase your flat but a serious change in circumstances further down the line (sometimes many years) may well put your ability to continue to meet your obligations into the waste-bin.
I have personal experience of falling behind with service charge payments due to my partner being made redundant and having mental and physical health problems for the last 7 years. Our managing agent gets regular e-mails about our financial affairs, along with my partners sick certificates and hospital release forms and because we take the issue seriously we also have a charge placed against our property.
2: The second (and the absolute worst) are those that simply don’t want to pay. They don’t offer any explanation, and they don’t use their right to challenge the charges through the courts if they feel they are unreasonable. They deploy all sorts of delaying tactics and when placed under pressure they may enter into a payment plan but renege on it, again with no explanation. They may even pay simply when they feel like it!
One such leaseholder has one lot of arrears paid by his lender but he has simply accrued another lot, forcing the recovery process to be started all over again. It is also important to note that lenders are not under any obligation to continue paying service charge arrears if they re-occur.
My advice would be that if leaseholders’ fall into the first category, they should first tell the freeholder or managing agent! Unless these parties are advised, they will continue to send out demands (which usually contain a threat of legal action) without having the slightest idea what the lessees are having to deal with and as a result inadvertently worsen their already existing conditions!
If the inability to pay is very short-term, again, tell the relevant parties. You may well be able to likely to arrange a payment plan to take off the heat!