Many leases allow landlords to recover payments from leaseholders that are neither ground rent or service charges and historically these were not regulated. This led to the inevitable abuse of landlords charging way whatever they liked. The (then) LVT had no jurisdiction in the area of determining the ‘reasonableness’ of those costs, so leaseholders had tremendous difficulty in challenging them. So, under Schedule 11 (s158) of the Commonhold and Leasehold Reform Act 2002 came the new legal category to protect leaseholders – ‘Administration Charges’ and landlords could charge ‘administration costs’ for the following:
- The consideration of and granting of approvals under the lease for structural alterations, sub-letting or selling;
- Late service charge payment;
- Providing information such as Replying to Pre-Contract Enquiries that usually arise in connection with the sale of leasehold properties;
- Charges that may arise from a breach or alleged breach of covenant.
- The landlord providing documents (or any other party such as a managing agent providing them);
- A breach (or alleged) breach of the lease terms.
Administration charges will either be ‘fixed’, which means they are calculated according to a formula or ‘variable’. If leaseholders want to challenge the reasonableness of fixed charges the only way they can do so 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. If they feel the variable charges are unreasonable then under s158 Schedule 11 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.