New Years Resolutions – Get the Basics Right.
You made it through another year! Accomplishing that in challenging economic times deserves a raised glass of bubbly. The New Year lends itself to looking ahead to the next 364 days to set goals and New Year’s resolutions. In trying to see where improvements can be made it can be useful to go back to basics and make sure that simple mistakes are not costing you time and money.
Responsibility for providing communal services under a lease can rest with either a management company or a landlord. New landlords can often underestimate the obligations and requirements they face in providing such services which are governed, in the main, by the Landlord and Tenant Act 1985 (“LTA 1985”). This introduced a number of controls to protect tenants from landlords using the service charges mechanisms unfairly.
So what are the basic controls in relation to service charges?
Demands (s18 LTA 1985)
A service charge demand does not need to be in a prescribed form but there is certain information it must contain in order for it to be valid:
- It must contain the landlord’s name and address (s47 Landlord and Tenant Act 1987) and an address for service of documents (s48 Landlord and Tenant Act 1987)
- in the case of an individual, the address for s47 purposes should be their residential address but the address for service (for s48) can be an agent if one is acting;
- for a company, it should be the company’s registered office (for s47) but again the service address (for s48) can be an agent’s address.
- The demand should be accompanied by a summary of rights and obligations for service charges. This sets out what rights the tenant has if he disputes the demand. If the property is in Wales, the summary should be in Welsh though we would recommend serving the English version too.
- If a landlord makes a demand for interest or legal costs from the tenant then the demand must be accompanied by a summary of rights and obligations for administration charges. In some cases it will mean that summaries for both service charges and administration charges need to be sent. As above, if the property is in Wales, the summary should be in Welsh but again include the English version too.
A tenant is not required to pay a service charge until this information has been supplied.
Time Limits for Demands (s20B LTA 1985)
You cannot demand service charges for expenses which were incurred more than 18 months before they were demanded. There will be occasions where the landlord has received a demand, say from an electricity company for communal electricity, but cannot pass it on to the tenant immediately, perhaps because the he is querying the figures. In order to avoid missing the 18 month deadline, the legislation allows the landlord to notify the tenant that the cost has been incurred and he is going to be required to contribute to it but specific information needs to be supplied in this respect.
Work undertaken on the property throughout the year will normally be of a routine nature, eg communal maintenance, gardening, cleaning of the communal areas. However, if major work is required where the cost to an individual tenant is £250 or more then a special procedure has to be followed known as s20 consultation. Examples of such work would usually be a new roof, repointing of the brickwork etc. The landlord is required to give advance warning of the works that are required and the tenants are able to nominate their own choice of contractors for consideration. The landlord must follow the procedure in terms of consulting tenants as failure to do so means that a tenant is only required to pay £250 towards any works.
Other points to bear in mind are:
Requests for Summary of Relevant Costs (s21 LTA 1985) – where a tenant disputes the amount of service charges that he is being charged, he is entitled to request, and the landlord must supply, a written summary of costs incurred in the last 12 month accounting period. The type of information required includes payments made on account and the costs incurred by the Landlord.
Request for Inspection (s22 LTA 1985) – once a tenant has received a summary of relevant costs, he can require the landlord in writing to allow him reasonable facilities to inspect accounts, receipts and other documents supporting the summary and also take copies of them. He must request this within 6 months of receiving the summary.
Tenant is unhappy with services – under s19 LTA 1985, service charges are only payable to the landlord to the extent that they are reasonable. If the tenant feels that the amount that they are paying is unreasonable, they have the right to take their complaint to the First-Tier Tribunal under s27A LTA 1985. This is clearly set out in the summaries of rights that must accompany demands to the tenants.
Having said that, whilst the amount of service charges claimed is the most common cause of dispute, a number of issues can be resolved simply by the landlord familiarising himself with the lease and the relevant dates and percentages that it contains.
One final point that landlords (and management companies) need to be aware of is that funds that are paid by the tenant towards service charges must be held in a trust account ie they must be ring-fenced from the landlord’s other accounts. These funds cannot be used for anything other than the service charge items listed in the lease.
If you would like any assistance with issuing demands or guidance on the legislation affecting service charge, please do not hesitate to contact us on 0333 0300 200 or for a free callback click here.