ServicechargeS Can’t pay, won’t pay


So you’re in dispute with your landlord over your service charge. Nowwhat do you do? elaine dobson and helenMattheWs talk readers through the legal process


Most long leases of flats include provisions by thelandlord to repair,maintain andinsure thebuilding andbythe tenant to paytheir shareofthe cost in theformofaservice charge. Thewordingofthe leaseiscrucial in determiningwhattenants areliabletopay forbut servicechargesmust be reasonably incurred andany services or workscarried out must be of areasonablestandard, as specified in Section 19 of the Landlord and Tenant Act 1985.


with residents Freeholdersandmanagement companiesare also required by Section 20 of the Act to carry out detailed consultation with leaseholders before anywork to blocks of flats is started. Failure to followthese requirements rigorously canresult in a landlord only being able to recover£250per flat, even if thecostsare very substantial indeed.Inthe recent caseofDaejan Investments v Benson [2011]EWCACiv 38 (see Flat Living,issue7,p31)the landlordwent throughthe first stepsofthe consultation procedure required by the Act but did not comply with it strictly enough. As only one of four estimates obtainedwere circulated to thefive tenants, theCourt of Appeal decided the landlord could only recover £250 per flat as against a total bill of £270,000.


in dispute It is easy to see howdisputes canarise.A landlord, perhapsblissfullyunawareofthe consultation requirements, decides it is high timehisbuilding with 12 flats hasamakeover. Hegoes aheadand instructshis builderto“do whatever needs to be done” in the expectation that,under thelease terms, he will be able to pass on the cost to the tenants.Imagine


ThaT Sinkingfeeling


Thelastthing anyleaseholder wantsistofindthattheir servicechargeis suddenly ramped up to pay for unforeseen repairs. So what’s the solution?


Leasesoftencall for landlords to establisha ‘sinking’ or ‘reserve’ fund whichallowsresidents to buildupasumofmoneyto cover thecost of expensive works suchas structural repairs, external decorationorwholesale windowreplacement. Thereare several advantages tomaintaining


54


y ramped up to pay for unforeseen repairs. Sowhat’s the solut overmany years;and


areserve fund, evenif your leasedoesn’t call for one. Sinkingfunds: nearn interestastheyare held foralonger period thanregularservice chargemonieswhich increases thefundand helps ease theimpact of risingrepair costs; nallowpaymentstobe spread, in somecases,


nevenoutannualcharges, avoidingone-off billsand helpingleaseholdersto budget inadvance. Ifyourleasecalls fora


sinkingfund, itmayalso determinehowmuch is tobepaidbyeach resident. If thisisnot the case,thechargelevied bythelandlordmustbe


‘reasonable’andhavinga maintenanceschedule in place(seepage53)makes contributionstoasinking fundtransparent.However, leaseholdershavethe samerighttochallenge unreasonablecharges viatheLVTaswithannual servicecharges. Anyunused payments madetoasinkingfund


arenotnormally repaid to leaseholders if theymove outoftheblock,but all leases aredifferentand thismay be thecase if the leasespecifies it.


Thereismoreinformationon service chargesand sinking fundsonourwebsiteat www.flat-living.co.ukandonthe


leasewebsite at www.lease-advice.org


Consulting Findingtherightsolicitor


howdoyougoaboutappointingthe rightpersonfor thejob?Makesureany solicitor youchooseisfamiliarwith currentleaseholdlegislationandhas relevantexperienceintheleasehold sector.


it is vital to naskabout theirexperience nseekreferences ndeterminehowmuchtheywillcharge


if youdon’tgetasatisfactoryresponse to yourquestions–findsomeoneelse.


hissurprisewhenhis builderarrivesatthe property to erectscaffoldingand thetenants ring himand askwhat is going on.Hetells themthat he has already entered into a contract with the builder costing £300,000 so theworksmust go ahead.


whatnext? Sowhat should the tenants do, given the huge bill withwhichtheymight be faced? In thefirst placethe tenantsshouldmeet up,appoint twoorthree residentstotakethe lead andagree onaway forward, including appointing asuitablyqualifiedsolicitor to advise. Thesolicitor consultedbythe tenantsis


likelytoadvisethemthatalettershould be sent urgently to thelandlord saying that unless he goes through the required consultation proceduretheywillnot be prepared to pay the costs, and if necessary they will applytothe LeaseholdValuation Tribunal (LVT)challenging theamountofmoney spent on their behalf.


using the lVt Supposingthe landlord will notbackdown, carries on with thework regardless and invoices the tenants for some£25,000 each? The tenants canapply to the LVT to determine the reasonableness of the service charges. They can seek to rely on the landlord’s failure to followthe section20 consultation procedure to have their contributions limited to £250 each. The LVT can however order that the landlordwas entitled to dispense with theconsultationprocedure.Ifthe tenants’ solicitoradvises that thismayhappen, abuilding surveyor should be appointedtoact as expert witness. The surveyor caninspect the building and theworkswhichthe landlord has done andset outinanitemisedreporthis expert opinionastowhether theworks are of areasonablestandardandwhatwouldbea reasonable cost for them. The LVT will consider this report at a hearing, along with any expert evidence fromthelandlord anddecidewhat the tenantsmust pay to the landlord as service charges for theworks, the optimumresult being their only having to pay £250 each. This canbe a costly exercise for the tenants


if it provesnecessary for there to beanLVT hearingtosettlethematter,perhaps around £15,000/£25,000 plusVATbetweenthem.Evenif successful theLVTcanonlyawardamaximum £500 costsagainst thelosingparty,but this is rare.Ifhowever theendresult is that thetenants payonly£250eachinstead of £25,000 eachthen itwill bemoneywell spent.Thetenants can asktheLVTtomakeanorder that thelandlord cannot add hiscostsoftheLVTapplicationto the service charges (a “section20C” application).●


elainedobson is a Real Estate partner and helen Matthewsa Senior Associate at BirchamDysonBellLLP tel 020 7227 7000Website www.bdb-law.co.uk


a Senior Associate at Bir Dyson Bell LLP


Autumn2011 Flat Living


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