Challenging Unreasonable Service Charges
All leaseholders have the legal right to challenge their service charges if they feel that they are unreasonable. All charges must be ‘reasonably incurred’ and only payable if those services or works are of a reasonable standard.
The first step is for the leaseholder to write to the landlord (or their managing agent) raising their concerns and stating why they believe that the charges are unreasonable.
If there are more than 4 flats in the block, leaseholders have the statutory right under s21 of the Landlord and Tenant Act 1985 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:
- Items/costs for which no payment has been demanded of the landlord within the period to which the summary relates;
- Items/costs for which payments has been demanded by the landlord but not paid within that period and;
- Items/costs 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. Any costs which relate to works for which grants have been paid or will be paid and must show how they have been reflected in the service charge demands.
The general advice from the LEASE website is that any leaseholder wishing to make such a challenge is that they is continue to pay their service charges whilst at the same time making it clear to the freeholder or managing agent that it is paid ‘without prejudice’ to their right to challenge the charge later.
ALTERNATIVE DISPUTE RESOLUTION
The first step taken to resolve the situation should initial communications fail should be that of alternative dispute resolution such as mediation. There is no legal requirement to take this route but because it is often quick, simple, and less expensive than litigation, the courts and Tribunals actively encourage it. They can also impose a financial penalty on those who unreasonably refuse to use it. A mediator can either be chosen by the parties or a court will appoint one on their behalf.
Mediators act as a go-between, assisting both parties in putting their cases in front of each other but they don’t act as arbitrators. This means they cannot force either side to do anything.
If that is unsuccessful then the leaseholder is entitled to make an application to the First-tier Tribunal (FTT) asking them to determine whether the charge is payable. If the service charges are paid but the leaseholders wants to make a challenge later is they can do so providing the leaseholder has not specifically admitted or agreed that the charges are payable.
There should however be no undue delay in pursuing any challenge, particularly in the light of the decision of the Upper Tribunal in the case of Cain v Islington Borough Council  UKUT 542 (LC) as to whether service charges were reasonable, (including those dating from twelve years ago). In summary a tribunal could infer from a series of payments made without protest that the tenant had agreed that the amount claimed was the amount properly payable. The longer the period over which payments had been made, the more readily a tribunal would find that the tenant agreed that which had been demanded. The tenant was barred by s.27a(4) of the Landlord and Tenant Act 1985 (liability to pay service charges: jurisdiction) from proceeding with the application.
There will be more on this article as for the first time in 10 years, our RMC is being taken to the Tribunal for ‘unreasonable service charge’ demands.