Lawyers Specialising In Leasehold Service Charge Disputes
Here at specialist Service Charge Dispute Solicitors, Bonallack & Bishop, our team understand the worry and stress of this kind of block maintenance dispute for both freeholders and leaseholders. For leaseholders in particular, understanding the ‘ins and outs’ of service charges can be really challenging, and disputes can happen if these charges seem unreasonable or unjustified. They may worry, for example, that they are being asked to pay service charges but have not seen the benefit in terms of maintenance and repairs. Likewise, freeholders may be concerned if they are exposed to a large repair bill which is not covered by the service charge.
A high service charge is a reality of many leasehold tenancy agreements in England and Wales, both for residential and commercial properties. In this guide, we will explain some of the main issues regarding leasehold service charges and service charge disputes, including your rights and obligations as a freeholder or leaseholder and the legal options available to you if you find yourself with these kind of problems.
Looking for specialist legal advice with your block management problem? Call our Service Charge Dispute Solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice.
Why use us as your Service Charge Dispute Solicitors?
Here at Bonallack & Bishop we are specialists in disputes between leaseholders and freeholders.
• Firstly, we have a highly specialist 6 strong leasehold team. Leasehold issues are all they do – and that includes First-Tier Property Tribunal applications
• Secondly, we have a 3 strong property litigation team – property disputes are all they handle
• Thirdly, we are the only law firm in England and Wales recommended by The HomeOwners Alliance for freehold service charge disputes. The HOA is the UK’s leading organisation campaigning for the UK’s homeowners.
What is a leasehold service charge?
A service charge is simply a payment made by a leaseholder to their freeholder (or sometimes a management company that is party to the lease) and can cover repairs, maintenance, improvements, insurance, or the freeholder’s management costs.
Service charges can be made directly or indirectly to the freeholder. Typically, the lease agreement will set out the services covered by the service charge, which may be mandatory (services the freeholder must provide) or discretionary (services the freeholder may choose to provide).
These type of expenses applied to a variety of residential and commercial buildings – but most commonly, service charges are imposed in relation to residential blocks of flats.
What are the types of services covered by a leasehold service charge?
There is no one set of services covered by a service charge, as this will depend on the agreement between the freeholder and leaseholder contained in the lease.
Leasehold service charges can cover a wide range of services, including but not limited to:
· Building insurance
· Cleaning and maintenance of communal areas
· Gardening and landscaping
· Management fees
· Repairs and general maintenance of the building structure
· Security services
· Servicing any lifts in the block
· “Sinking” or reserve fund contributions
· Utilities for common areas (e.g., lighting, heating etc)
Do I have to pay a service charge as a leaseholder?
This will depend upon your lease but if a service charge is required to be paid in your lease you must pay the service charge to your freeholder/management company.
With that being said, the service charge that you pay must, by law, be both reasonable and justified. That’s because Section 19 Landlord and Tenant Act 1985 (LTA 1985) protects leaseholders by limiting the amount that they are expected to pay for service charges to what is reasonably incurred and of a reasonable standard.
In the event of a leasehold service charge dispute, evidence to prove whether those costs are reasonable and justified is vital.
From the leaseholder’s point of view, proof to show that the charges are unreasonable is just as important if you are trying to reduce any charges as it is for freeholders to show that they were required and had been carried out to a reasonable standard.
Whether you are a freeholder or leaseholder, our experienced service charge solicitors can advise whether the evidence you have collected is going to be enough, as well as advising on how to protect yourselves going forwards by being aware of what kind of evidence you will need to obtain.
What are the service charge protections for leaseholders?
The Landlord and Tenant Act 1985 limits what freeholders can recover from leaseholders through service charges and sets out the obligations for providing information to leaseholders.
The Landlord and Tenant Act 1987 requires certain information to be provided to leaseholders for the charges to become due and payable.
In England and Wales, under the Landlord and Tenant Act Acts, there are plenty of service charge protections for leaseholders. In particular, the following apply;
· Freeholders can only charge costs in the service charge that have been reasonably incurred
· The services must have been carried out to a reasonable standard
· The amount of any advance payment of service charge must be reasonable
· If the lease allows the freeholder to demand a variable administration charge, the amount of that charge must be reasonable
· Leaseholders do not have to pay service charges or administration charges unless the freeholder includes key information in the demand for those charges
· Leaseholders do not have to pay service charges that were not requested before the deadline for invoicing set in legislation. (Currently 18 months) (Except in certain circumstances).
· Leaseholders have the right to ask for information about any costs that form part of the service charge
· Freeholders must hold service charge monies received from leaseholders on trust
· Leaseholders can apply to the First-Tier Property Tribunal (in England) or the Leasehold Valuation Tribunal (in Wales) to decide whether a service charge should be paid.
Protection is also provided by the Leasehold Reform, Housing and Urban Development Act 1993. This act introduces the RICS Service Charge Residential Management Code (see below for more information), which, although not mandatory, provides guidelines for best practice for service charge management.
This list of legal protections for leaseholders is by no means exhaustive. If you are unsure of your rights when it comes to paying service charges as a leaseholder or if you are a freeholder and are uncertain if you may have any potential or valid disputes regarding the sums looking to charge, make sure you call 1 of our specialist service charge disputes Solicitors. We are here to ensure that your interests are protected.
Can I dispute a service charge as a leaseholder?
In short, the answer is yes. As a leaseholder in England or Wales, you have the legal right to dispute service charges that you believe are unreasonable or not properly justified.
Leasehold service charge disputes can be taken to the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal (LVT) in Wales.
What freehold service charges can leaseholders challenge?
You can challenge the reasonableness of the charges, the quality of the services delivered for your property, or your freeholder’s compliance with the terms of your lease agreement. Your claim is likely to be particularly strong if you can show a clear breach of lease by your freeholder.
Can a freeholder or management company ask the Tribunal to confirm that those charges are reasonable?
Again, the answer is yes. A freeholder or management company that is due payment of a service charge can equally seek a determination that the charge they are looking for is reasonable.
This is also a requirement under Section 81 Housing Act 1996 prior to issuing a notice pursuant to Section 146 Law of Property Act 1925 , which is required before any forfeiture proceedings can be commenced for Residential properties.
What are the grounds for a leasehold service charge dispute?
Some of the most common reasons for challenging a service charge in England or Wales are as follows:
· Unreasonably high costs
· Poor quality of services
· Lack of transparency in the calculation of charges
· Charges for services not received or not covered in the lease
· Failure of the freeholder to comply with consultation requirements
Can a freeholder’s property have a service charge?
Yes, even freeholder’s properties can incur service charges. Freeholder service charges normally cover communal services or maintenance of shared areas and facilities, especially in developments with multiple units.
In housing developments where there are shared common facilities or spaces, service charges are often used to maintain these areas. These may include:
· Shared driveways or parking areas
· Communal gardens or recreational facilities
· Private roads within the development
Freeholders in this type of development may need to contribute to the upkeep of these shared facilities, with the costs divided among all property owners.
However, the rights regarding leasehold properties are different to those of Freehold properties. If you own a freehold property and are disputing a charge or if you are the owner of the communal land of which has the benefit of the covenants on the transfers of the individual freehold properties, then sensible to talk to solicitors who specialise in this area – like our team.
Can service charges apply to leaseholders with a share of freehold ?
Yes, if you are a leaseholder who also owns a share of your freehold, you may be expected to pay service charges. In such cases, the lease should explain why any service charges are payable.
If the freehold is owned by a company of which you own part of, then there may be obligations under the articles for the company in addition any obligations contained in the lease itself.
When leaseholders own part of a shared freehold, they share responsibility for the maintenance and management of the building. This may include:
· Setting and collecting service charges
· Arranging for necessary repairs and maintenance
· Ensuring compliance with health and safety regulations
· Managing financial accounts and budgeting for future expenses
· The specifics of these responsibilities will be detailed in the management agreement or articles of association of the management company.
As the owner of a long leasehold flat in this situation, you have two sets of obligations – one as the leaseholder to pay reasonable service charges and another obligation as 1 of the freeholders to comply with as set out above. This can be quite complex at times and you may wish to seek legal advice if you find yourself with problems in this situation.
What is the ‘RICS Service Charge Residential Management Code’?
The RICS Service Charge Residential Management Code published by the Royal Institution of Chartered Surveyors (RICS) provides best practice guidance for freeholders when it comes to handling service charges including the following:
· Managing agents and freeholders who handle service charges must be transparent, use proper accounting practices, and separate service charge monies from other funds at all times,
· It covers the calculation, apportionment, and demands for service charges, ground rent, and administration charges. This is about making sure that service charges are transparent, fair, and communicated clearly to leaseholders.
· It deals with the standards and procedures for carrying out repairs and providing services funded by service charges. The guidance requires that repairs are transparent, necessary, cost-effective, and completed to a satisfactory standard.
· The guidance sets out the requirements for insuring the property including obtaining adequate cover and ensuring that the insurance costs are reasonable and justifiable.
· It also includes a requirement is to provide clear and detailed information to leaseholders about service charges, including budgets, accounts, and how their contributions are being used.
It is important to bear in mind that while the RICS Service Charge Code is not compulsory, it represents best practice and, therefore, it’s use is highly recommended.
In addition, if there is a breach of the Code, this may be used as evidence in civil proceedings and may influence the court or tribunal’s decision on the reasonableness of service charge costs.
The importance of understanding your lease agreement
Whether you are a leaseholder and considering challenging your service charge or you are a freeholder or management company looking to respond to a dispute, the first step is to have a look at your lease. In particular you will need to review and understand the terms of the lease regarding service charges.
Residential long leases can be complex. And unlike the AST, or Assured Shorthold Tenancy, they can vary considerably.
If you are unsure how to interpret your lease agreement, that’s not unusual. But you will need to speak to specialist property disputes solicitors.
What to look for in your lease
Your lease covers both the freeholder’s obligations and the leaseholder’s responsibilities when it comes to charging and paying service charges.
Your lease should contain a service charge section (or sections) explaining the services covered, the method of calculating the charges, and any limits on the amounts payable. Some of the key provisions to look out for are as follows:
· Service charge clause – explains which services are included and how charges are calculated.
· Payment terms – explains when and how service charges are to be paid.
· Dispute resolution – explains how disputes over service charges should be resolved.(However, please note that any clause with regards to arbitration is now void in relation to leasehold residential properties pursuant to S27A Landlord and Tenant Act 1985)
There are often additional rights, such as consulting leaseholders on large charges, which are not normally included in leases but have been added in by legislation.
Just because a lease does not mention certain rights does not mean that they don’t exist. Again it is often sensible to ask specialist service charge disputes solicitors to review any particular issue in the lease for you to make an informed choice.
Click here to read more about leasehold terms to look out for and which could cause you problems when buying a leasehold flat
Resolving your dispute – 1st steps
Once you understand the lease, we recommend to leaseholders that they ask your freeholder/management company for details of the work completed. In particular, this should include any receipts of the costs incurred.
We similarly recommend to any freeholder/management company finding themselves in this situation, that they prepare these documents to defend against any action regarding reasonableness or to evidence that the sums are due and payable if seeking a Tribunal determination.
With that kind of information, it easier then to decide if the charges are properly due.
If you believe that you have grounds for disputing the leasehold service charge or that one of your leaseholders believes they have, it may be possible to find a solution simply by speaking to your freeholder/leaseholder directly and explaining your concerns and position regarding the charges. Referring the matter to a Tribunal is , thankfully, not always needed. Sensible negotiation is usually quicker and easier. And needless to say, much cheaper
If negotiation with your freeholder and leaseholder does not end up with a sensible agreement both parties can live with, you may find it necessary to apply to the First-Tier Tribunal or Leasehold Valuation Tribunal, to make a decision based on the available evidence.
Your leasehold dispute – practical preparation for a Tribunal hearing
If you have made the decision or have been advised by your service charge dispute lawyer to take your matter to a tribunal hearing, it is important to complete the process carefully.
Your lawyer can handle this process for you, ensuring that you have the best possible chance of achieving a positive outcome.
To prepare for your service charge dispute tribunal hearing before an FTT (in England) or Wales (LVT), the following steps should be taken:
· Gather any relevant evidence and documentation, including your lease agreement, service charge demands, receipts, and correspondence with your freeholder/management company/leaseholder.
· Prepare a clear and concise statement outlining your dispute and the grounds for it, and
· If necessary, get an expert report to support your case, especially if the dispute involves technical issues like the quality of repairs or the reasonableness of costs.
Click here to learn more about how the First-tier Property Tribunal works.
What is the role of Solicitors in service charge disputes?
No matter how complex your dispute, our service charge dispute Solicitors understand both registration and recent case law in these kind of cases. We are here to guide you throughout the process – from day one to what we hope is the successful completion of your dispute.
We will help interpret your lease agreement, your rights and obligations, recommend the best way forward, gather necessary documentation, and represent you in any negotiations or Tribunal proceedings. Our expertise will ensure that your rights are protected and that any charges are fair and justified.
A long term solutions to your service charge problems?
Ultimately, perhaps, and especially if your freeholder is not maintaining the property properly, 1 of the best answers to this particular problem is to either take over management of the block yourself by exercising the right to manage your freehold. Or, alternatively ask the court to appoint what is known as a “court-appointed manager”.
Here at Bonallack & Bishop, our leasehold team handle right to manage applications regularly.
Click here to read more about how our Right to Manage Solicitors can help you
Examples of service charge dispute cases
To give you an idea of the kind of disputes that arise in tribunal is and how they dealt with, here are some recent examples of real cases.
- Example 1: Dispute over ‘fair proportion (Tower Hamlets Community Housing Ltd v Leaseholders of Painter House 2024)
In this first case, the freeholder, Tower Hamlets Community Housing Ltd, wanted to change how service charges were split among the leaseholders because the existing system did not add up to 100% of the total costs. In the building, 22 out of 24 leaseholders were each paying 1/38 of the costs, while two flats paid a “fair proportion.” The freeholder proposed that each leaseholder should pay 1/24 of the total costs.
THE OUTCOME – The tribunal agreed that the freeholder could ask for changes in theory but decided not to approve the new proportions. This was because the new plan would unfairly increase costs for the leaseholders by including expenses related to a commercial unit in the building. The tribunal kept the existing service charge setup, which they found fair.
- Example 2: Repairs not completed on time (Fairbairn v Etal Court Maintenance Ltd 2015)
In this case, a freeholder tried to pass previous settlement costs and legal fees after being sued by a leaseholder for not doing repairs on time to their leaseholders through the service charge.
THE OUTCOME – The tribunal ruled that the freeholder couldn’t make the leaseholders pay for these costs. It was the freeholder’s fault for not managing the repairs properly, so it was unfair to charge the leaseholders for the freeholder’s mistakes.
- Example 3: Service charge sent late (Skelton v DBS Homes (Kings Hill) Ltd 2017)
Here, the freeholder sent a valid service charge bill more than 18 months after the costs were incurred. The issue was whether the freeholder was allowed to send such late bills.
THE OUTCOME – The court ruled that freeholders must send service charge bills in accordance with the lease requirements within 18 months of the costs being incurred. Since the bill that complied with the lease was late, it was invalid, and the leaseholder didn’t have to pay it.
Commercial service charge disputes
While this page focuses on residential service charge disputes, similar principles, rights, and obligations apply to commercial property service charges. For example, leaseholders of commercial properties also have the right to challenge unreasonable service charges.
If you have a service charge dispute with a commercial freeholder or leaseholder, it is essential to get legal advice from a solicitor with good experience of commercial property service charge disputes. That’s because the contents of commercial leases can vary significantly.
Commercial leases often have more complex service charge provisions, reflecting the higher costs and specific requirements of commercial properties. For example, commercial leases often explain in detail the services provided and the method of calculating charges.
Service charges for commercial properties can also be significantly higher due to the nature of the services required. In addition, commercial leaseholders may have more room to negotiate service charge provisions before signing the lease.
Additionally, to dispute commercial service charges would be a different process than for residential service charges. The tribunals do not have jurisdiction to hear commercial property cases.
Need advice on a commercial property service charge dispute? Call our Solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice.
Final words
We know from first-hand experience of assisting residential and commercial leaseholders and freeholders that service charge disputes can be complex and stressful.
Our job is to take this stress away and manage the process of resolving your dispute for you as much as possible. We will provide clarity and support, ensuring that any disputes are resolved in a fair and just manner.
Whether you have a residential or commercial service charge dispute, the key is to stay informed and seek professional advice to protect your interests. By taking a proactive approach and utilising the resources and rights available, leaseholders and freeholders can ensure that their service charges are fair, transparent, and justified.