Challenging service charges for leasehold properties

What is a service charge?

If you do not own the freehold title to the building, you will be liable to comply with the terms of the lease. The lease sets out your obligations and responsibilities as the tenant (also referred to as the lessee) and the landlord (also referred to as the lessor).

Ordinarily, your lease will include a service charge provision. A service charge is a sum paid by you as the leaseholder to the landlord to cover costs such as:

• General maintenance
• Repair costs
• Cleaning services for communal areas
• Building insurance costs
• Any other costs relating to the upkeep of the building

Full details of the likely service charge should be outlined in the lease (or tenancy agreement), including what the landlord may charge for and at what cost.

You may also be liable for additional costs above and beyond what is set out in the service charge provision, known as the reserve fund.

What is a reserve fund?

A reserve fund is a sum of money the landlord holds on behalf of the leaseholders to cover the cost of major works or other items of significant expenditure exceeding the service charge provision. 

The reserve fund is therefore payable on top of the service charge and is used to fund non-routine repairs and replacements, such as installing a new lift.

If and when the reserve fund can be requested depends upon the terms of your lease. Sometimes, the lease may make provision for a portion of the service charge to be put into a separate account for major works.

However, this depends on the terms of your lease, and you should consult the lease document carefully to ensure that you understand your financial obligations as a leaseholder.

Major works/additional funds requested by landlord?

When the landlord is planning works which will cost more than £250, the leaseholders must be consulted under section 20 of the Landlord and Tenant Act (LTA) 1985. 

If you are not consulted, and the landlord attempts to recover the costs by means of a service charge, then the service charge may be limited to £250.

If long-term works are anticipated, i.e. not just a one-off sum for non-routine repairs, then the landlord must consult with you if the cost to you as the leaseholder will exceed £100 per annum. 

If you are not consulted, and the landlord attempts to recover the costs by means of a service charge, then the service charge may be limited to £100 per annum.

What can you do if you don't agree with your service charges?

You may disagree with the service charges, and this may be for several reasons, such as:

• You believe that the service charge is unreasonable or disproportionate.
  
   
• You consider the landlord is charging costs for services not covered in the lease.
  
   
• You believe any works undertaken were unnecessary or not completed to a reasonable standard.

If you are unhappy with the service charge, you can take several steps to challenge it. You may wish to:

• Write to your landlord and outline the disputed service charge(s) and the reason for the dispute. Please ensure you retain copies of any correspondence between yourself and the landlord, as these will be useful should legal proceedings become necessary. If you do not receive a satisfactory response from the landlord, you should raise a formal complaint to the landlord.
  
   
• If you remain without an adequate solution to your service charge dispute after completing the formal complaints procedure, then the next step would be to make an application to the Leasehold Valuation Tribunal (LVT).
  
   
• Costs for applications to the Leasehold Valuation Tribunal are relatively low, ranging from £65 for disputes regarding service charges of not more than £500 to a maximum fee of £440 for disputed service charges worth more than £15,000.

For the avoidance of doubt, landlords must serve demands for service charges within 18 months of any relevant works being completed. 

Suppose the service charge demands are served after 18 months. In that case, you may not be liable to pay the service charge unless the landlord serves notice within the 18 months period stating that works are being conducted, the cost of which you will be required to contribute to.

Calculating the cost: Why challenging service charges on an individual basis is often impractical

While leaseholders need to be aware of their rights and avenues for disputing service charges, it's crucial to recognise the practical aspects of individual challenges. 

In many cases, the work involved and legal fees associated with challenging service charges on an individual basis may surpass the actual amount in dispute. 

Given this cost dynamic, it's often more feasible and cost-effective for leaseholders to collaborate and address service charge concerns collectively. By joining forces with fellow tenants, the financial burden of legal proceedings can be shared, making pursuing a solution more viable. 

Before embarking on an individual challenge, weigh the potential costs against the disputed service charge amount and explore the option of collective action for a more economical approach.

Contact our solicitors

Our solicitors are available to help groups of leaseholders facing issues, especially when they come together as a collective. We are experienced in negotiating with landlords, property management companies, and freeholders to resolve disputes or address common concerns.

We have offices in London, Brighton, Eastbourne, Hastings, Uckfield and Ulverston, and we support leaseholders locally and nationally.