Landlord and Tenant Act 1985
The first of the two main statutory authorities for regulating variable service charges and provide a framework for supporting tenants rights under the terms of their leases came with the Landlord and Tenant Act 1985, specifically under two sections:
- 27a; (liability to pay service charges: jurisdiction) which deals with lessee applications to the FTT over the ‘reasonableness’ of service charges. If leaseholders feel that work being carried out on their building is unnecessary, they also have the right to take their landlord to the Tribunal under this section which will help the Tribunal to determine whether or not the cost of the disputed works is in fact payable and;
- s20c: (limitation of service charges; cost proceedings) preventthe freeholder from putting the costs of any legal proceedings through the service charges even if the lease allows it.
This Act is also the first of the five main Acts of Parliament specifically concerned with the management of blocks of flats
Other key parts of the Act are:
s1: (disclosure of landlords identity): Under criminal law, leaseholders have the right to ask for the name and address of the landlord if the service charge demand doesn’t contain it. it. The managing agent has 21 days to reply. If there is no ‘reasonable excuse’ for not providing the details then the landlord can be prosecuted in the Magistrates Court.
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): A service charge is an amount payable by a tenant of a dwelling as part of, (or in addition to), the rent which is:
- Payable, (directly or indirectly), for services, repairs, maintenance, improvements or insurance or the landlord’s cost of management, and;
- The whole or part of which varies, or may vary according to the relevant costs which are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. For this purpose costs are relevant costs in relation to a service charge whether they are incurred or are to be incurred in the period for which the service charge is payable or in an earlier or later period. Such costs include overheads.
Note: 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:
- The service charge must be reasonably incurred;
- It must be reasonable in amount;
- the services are of a reasonable standard.
So if leaseholders feel the amount they are paying is unreasonable then they have the right to take their complaint to the First Tier Tribunal. This section also states that service charges are only payable for the provision of services or works that are of a reasonable standard. So if leaseholders are unsatisfied with the level of service they are getting for their service charge payments, once again they have the right to take their landlord to a Tribunal;
s20: (limitation of service charges: consultation and requirements) and amended by s151 of the Commonhold and Leasehold Reform Act 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.
s21: (service charge information): If there are more than 4 flats in the block, leaseholders (or a recognised residents association) 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. if there are more than four dwellings then the summary must be certified by a qualified accountant who is also a Registered Auditor.
Once the request is received the Landlord must provide the information within one month or within six months or the year end, whichever is later. Failure to meet these deadlines is a criminal offence. 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 payments has been demanded by the landlord but not paid within that period; and
- 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 o 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.
21a (withholding service charges): Not yet implemented. So leaseholders are not allowed to withhold payment should these rights be withheld
s21b (notice to accompany demands for service charges): A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges.
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.
s28 (meaning of qualified accountant) who is defined as a registered auditor who will state that:
- In his opinion a fair summary complying with the requirements of subsection 5 of s21 and,
- 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.
s30 (meaning of ‘flat’ ‘landlord’ and ‘tenant’) as inserted by s44 of the Landlord and Tenant Act 1987 (recognised tenants’ associations to be consulted about managing agents);
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. It should contain:
- The amount for which the property is insured;
- The name of the insurer;
- The risks that the policy insures against.
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.
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.
The Landlord and Tenant Act 1987 is the second statutory provision for regulating variable service charges and the second Act specifically concerned with the management of blocks of flats by building on the 1985 Act. An overview can be found here.