Landlords must be fair with service charges for maintenance, but the challenge often arises in determining what’s reasonable.
Leaseholders have the legal right to dispute service charges if they think they're unreasonable. However, it’s important to approach this carefully to avoid breaching lease terms.
For example, withholding payment of unreasonable service charges might seem reasonable if your service charge has doubled, but it could lead to legal action by the landlord. And, if you’re found in breach, you could face high costs.
So, what exactly are your options if your service charge has shot up in a short amount of time?
What should I do if I’m not happy with a service charge demand?
Put simply, if you’re not happy with the amount demanded in service charges by your landlord, you can do one of two things before taking further action:
Pay the service charges under protest (Recommended)
Paying service charges “under protest,” means you’re following the demand but at the same time letting the landlord know that you object to it. And that last part is super important:
Why is this the recommended course of action? Well, in paying a service charge under protest you are preventing a breach of contract but giving yourself the option to dispute the service charge later on if you choose
How to show you are paying a service charge under protest
If you’re asked to pay a service charge that you disagree with and think you may contest it in the future, you should make this clear at the time of payment. You can do this by writing a letter to accompany your payment, making sure it is dated and signed.
This letter should:
Clearly state that the payment is being made under protest;
Express your disagreement with the service charge;
Clarify that the payment should not be seen as an agreement to the charges demanded;
Confirm your right to dispute the charges in a court or tribunal setting.
While making a one-time payment for a service charge you disagree with, without formal protest, might not be seen by a court as agreement to the charge, if you consistently pay a service charge you disagree with without explicitly stating that you are doing so under protest, a court might interpret your actions as consent to the service charge.
Withhold payment of the service charge
Leaseholders often think about withholding service charge payments when they're unhappy. However, not paying could violate your lease terms, leading to legal action by your landlord.
You can legally withhold payment in specific situations:
If the demand lacks the prescribed summary of rights and obligations;
If the demand doesn't include the landlord's name and address for service.
But if the landlord fixes these issues, your right to withhold charges may be lost. So, it's generally not recommended to withhold service charges just because you disagree with them.
What is seen as a reasonable service charge?
The Landlord and Tenant Act 1985 states that landlords can only charge for a service if the costs are reasonable, and the works meet a reasonable standard.
If a leaseholder disagrees, they can challenge it by applying to the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales. These Tribunals decide if the service charge is fair and how much should be paid.
In assessing whether a cost is reasonable, a Court or Tribunal doesn't expect landlords to take unnecessary risks just to save money on service charges. Recent case law examples illustrate the idea of 'reasonableness' in service charges.
For instance, in the Waaler case, improvements were deemed reasonable due to necessary repairs. In a recent case against Assethold, the landlord's decision was based on what they reasonably believed to be good advice, but the quality of the works was penalized, not just the decision itself. In the Farleigh case, the landlord wasn't expected to take risks just to potentially lower costs.
However, taking legal action for service charge disputes is a significant step. So, how do you assess whether a recent increase in service charges is reasonable or not?
How to determine if your service charge increase is reasonable?
To assess whether you think your service charge is reasonable, you should consider factors such as:
What amenities and services you get for the charges, like maintenance, security, clearing, and shared facilities;
The size of the property;
The location of the property (taking into account local property prices, cost of living and nearby amenities);
The age and condition of the building;
Service charge history, either your own or what others in similar properties have paid in the past.
Other ways you can review whether or not service charges are reasonable include:
Asking for a summary of the service charge account
Leaseholders have the right to ask the landlord for a summary of the service charge account, providing an overview of relevant costs for the last accounting year or the past 12 months if accounting years aren't used.
This written request can be sent directly to the landlord or managing agent. Landlords must then provide the requested information within one month or six months of the end of the 12-month accounting period, whichever is later.
The summary should cover:
How costs relate to the service charge demand, or if they'll be included in a later demand.
Any items not billed to the landlord during the accounting period.
Any items billed to the landlord but not paid during the accounting period.
Any items billed and paid during the accounting period.
Whether any costs relate to work for which an improvement grant has been or will be paid.
If the service charge applies to more than four properties, the summary must be certified by a qualified accountant independent of the landlord.
Leaseholders can further investigate service charges by requesting to see accounts, receipts, and other documents in the summary related to the service charge information.
If a landlord fails to provide a summary or access to supporting documents without a reasonable excuse, it's considered a summary offense. If convicted, they can be fined up to £2,500. The local housing authority can also initiate legal proceedings against the landlord, or the leaseholder can do this themselves with the help of a property solicitor.
Requesting a management audit
Getting information beyond legal requirements can be tough, especially if tenants want to challenge these arrangements. It's also challenging to question service charge costs without detailed inspection and knowledge of building practices.
To address this, unhappy tenants can request a management audit individually (in a building with one or two dwellings) or collectively (in a building with two or more dwellings if at least two-thirds of tenants agree) providing:
They have a long lease (originally for more than 21 years);
They must pay service charges;
The lease is not a business lease.
Recognised tenants' associations can also appoint a surveyor to advise on service charges, providing insights they wouldn't normally have.
While these rights don't directly solve the problem, management audits or surveyor insights can offer information to support a challenge of service charges at a Tribunal.
Importantly, tenants will need to cover the costs of this action, and they cannot be recovered from the landlord regardless of the findings.
I still don’t think my service charges are reasonable. What should I do?
If, after investigation, you think your service charge is not reasonable, here’s what you can do…
Take a look at your lease agreement
Firstly, read your lease thoroughly so you know your rights and responsibilities. In some cases, your ability to negotiate a service charge might be restricted by your lease agreement. Regardless, taking a good look at the terms of your lease will help you understand your position and the best next steps to take in your circumstances.
Talk to your landlord or property manager
If you're concerned about your service charge, start by talking calmly to your landlord or property management. You might be able to negotiate a better deal without formal actions.
Keep in mind that negotiation involves finding a compromise. If you're unsure, getting legal advice before talking to your landlord can clarify things and make you feel more confident.
Get advice from a property lawyer
Talking to a property lawyer about a service charge issue doesn't mean you're going to court. Legal advice helps you understand your position and how to challenge unfair charges.
A lawyer might suggest mediation as a way to resolve issues with the help of a neutral third party. If informal talks or mediation don't work, they can also guide you on the next steps.
Apply to the First-tier Tribunal (Property Chamber)
Anyone can apply to the First-tier Tribunal (Property Chamber) to decide if a service charge needs to be paid, as long as the leaseholder hasn’t agreed they must pay it. In such applications, the Tribunal will decide if the charge is fair, the amount, who pays, and when and how it’s paid.
To apply, leaseholders will need to fill out the relevant form, pay the fee, and include a copy of their lease. In some cases, the Tribunal may arrange a hearing, especially for complex cases.
Get help with service charge disputes from Lawhive
At Lawhive, our property solicitors are highly experienced in resolving service charge disputes between leaseholders and freeholders. We collaborate with the UK's top lawyers to provide practical and cost-effective advice that suits your unique situation.
Our goal is to simplify access to the law and justice for everyone. As such, we offer fixed fees to assist in resolving your service charge dispute. Contact our legal assessment team for a free, no-obligation discussion, case assessment, and a quote for our services today.