Residential service charges are one of the most common areas of dispute between landlords and tenants, with many cases ending up with a legal hearing. Maunder Taylor, who specialise in residential block management in Cheshunt, Hatfield, and across Hertfordshire and North London, examine some of the key bones of contention.
What are Service Charges?
Service charges are a way for landlords to recover their costs for providing services (usually communal ones) to a building, and aren’t part of the regular rent payments. This can include cleaning shared areas, lift maintenance, central heating, buildings insurance and employing any people on site. It is important to note that landlords can’t make a profit on the service charge, which is only meant to meet their costs.
The Lease Should Cover Everything
The lease that the tenant signs in advance of moving in should cover everything, including what the charge is (some are fixed, while some are variable). It should also specify if the service charge is payable in advance, quarterly or annually, as well as whether any management or managing agent costs are payable.
Landlords don’t have the right to charge anything that isn’t in the lease. Leases should also explain on what basis the charge is levied, such as square footage of the flat as a proportion of the whole building as a simple percentage of the total service charge or, in older leases, it may be based on the rateable value of the flat as a proportion of the rateable value of the whole building. The legal basis for any residential service charge is underpinned by the Landlord and Tenant Act of 1985.
What is ‘Reasonable’?
You might have thought, as everything is (or should be) legally defined, there shouldn’t be as many residential service charge disputes as there are. The problem is that the word ‘reasonable’ features heavily in the legislation. Interpretation of this term can vary wildly, depending on whether you are the landlord or the tenant, which is why so many of these cases end up at a tribunal.
For instance, service charges can go up or down without any limit, according to the terms of the lease, but the landlord can only recover costs that are ‘reasonable’. The word ‘reasonable’ also applies to the landlord’s spending on the fabric of the building. The landlord is interested in maintaining the condition and value of their investment, whereas tenants may take a different view, particularly if they only plan to live there for a few years. This difference in outlook and opinion often leads to disputes.
Even those tenants paying fixed charges can also be expected to pay into a ‘reserve’ or ‘sinking’ fund. These are imposed by the landlord to meet unexpected or one-off costs, such as repairing the fabric of the building or replacing a faulty lift, which also can lead to problems.
A Question of Standards and Legality
Disputes can also occur when tenants aren’t happy with the standard of work that has been completed, or in cases where they believe the service hasn’t been provided at all. Sometimes, the lease isn’t as clear as it should be regarding what tenants are expected to pay and when, or who has what financial responsibility. Leading to the possibility that the charges can be disputed on legal grounds. On the other hand, non-payment of the charge – for whatever reason – can also lead to a dispute on the landlord’s side.
What Happens Next?
At Maunder Taylor, we always encourage dialogue between landlords and tenants over any property dispute, including residential service charges. This avoids any costly and protracted legal action.
However, if the dispute can’t be settled immediately, we recommend Alternative Dispute Resolution, which usually involves mediation, arbitration and adjudication with a third party. Only if this fails to produce a satisfactory result would we recommend taking it further to a tribunal or court.
At Maunder Taylor, we specialise in residential block management in Cheshunt, across Hertfordshire and many parts of north London. We also have many years of experience as property dispute advisors, and operate out of offices in Potters Bar and Whetstone. For more details, follow this link.