Find a Solicitor for your

Service Charge Dispute

As homeowners and tenants strive to maintain their properties and communal spaces, it is common for service charges to become a main point of conflict. These charges, there to cover the costs of essential services and upkeep of shared areas, often spark disagreements that can quickly escalate.

In this guide, we'll explore the reasons behind the rising tide of disagreements, the legal responsibilities of property owners and managing agents, and the avenues available to those seeking to challenge what they believe are unjust charges.

In this article, we will cover:

• What are service charges;

• Service charge examples;

• Estate management scheme charges;

• Service charges and the law;

• When are service charges payable;

• When are service charges deemed reasonable;

• How much do service charges cost;

• Are there any limits on service charges;

• Can you dispute a service charge;

• How to dispute a service charge;

• Can I claim back service charges;

• Can you refuse to pay a service charge;

• When can a landlord demand service charges;

• How long does a landlord have to recover service charges;

• Can a leaseholder ask to see a summary of service charges;

• Common causes of service charge disputes;

• Service charge disputes and alternative dispute resolution;

• Get legal help for service charge disputes;

What are service charges?

Service charges fund everything from routine maintenance to communal facility upgrades when renting spaces in a communal living set-up. They are like a shared bill for certain costs that come with living in an apartment or a housing development. 

You will pay a certain amount of money every month, along with your fellow neighbours, to cover things that everyone benefits from, like taking care of the building, shared gardens, or maybe a gym - fancy!

If you live in an apartment building or a community with shared spaces, these are things that everyone needs to contribute to. The money you and others pay for these shared costs is called a service charge.

While service charges are supposed to be fair and cover the things everyone benefits from, often there can be disagreements. People sometimes feel they're paying too much towards the service charge or in fact not getting their money's worth. That's when service charge disputes happen.

Service charge examples

Service charges make sure that everyone in a shared property or development contributes to the upkeep of the communal spaces within the property, making it a fair system for maintaining a good living environment for all residents.

The service charges cover a variety of areas such as:

Admin Charges

What it is: This covers the administrative costs of managing the property. It includes things like paperwork, maintaining records, and general management tasks.

Example: Paying for the time and effort it takes to process paperwork for things like lease extensions or changes in property ownership.

Insurance

What it is: This covers the cost of insuring the building.

Example: If there's damage to the building due to a fire or flood, the insurance helps cover the cost of repairs.

Ground Rent

What it is: Some properties, especially leasehold properties, require payment of ground rent to the person or company who owns the land the property is on. It is important to note that the Leasehold Reform (Ground Rent) Act 2022 put an end to ground rents for most new long residential leasehold properties in England and Wales, replacing them with a peppercorn ground rent. The Act came into force for most new leases on 30 June 2022 and from 1 April 2023 for leases of retirement homes.

Example: An annual fee paid to the landowner for using the land where your apartment building is located.

Estate Management Scheme Charges

What it is: This covers costs associated with managing the overall estate or property development. It could include things like security, communal area maintenance, or shared facilities.

Example: Paying for a management company to maintain shared gardens, playgrounds, or security services for a housing development.

Sinking Fund

What it is: This is a reserve fund set aside for future major repairs or renovations.

Example: Putting money aside each month to save up for a new roof or major repairs to the building's structure.

Service charges and the law

Several legal acts and regulations govern service charges to ensure fairness and transparency in property management. 

The key legal references you should be aware of are:

• Landlord and Tenant Act 1985:

The Landlord and Tenant Act 1985 sets out the rights and responsibilities of landlords and tenants, including regulations regarding the reasonableness of service charges, the provision of information about costs, and dispute resolution mechanisms.

• Commonhold and Leasehold Reform Act 2002:

This act introduced various reforms to leasehold property law, including regulations on consultation requirements for major works, restrictions on the recovery of service charges if certain procedures are not followed, and the establishment of the First-tier Tribunal (Property Chamber) to hear leasehold disputes.

• Service Charges (Consultation Requirements) (England) Regulations 2003:

These regulations set out specific consultation requirements for landlords when proposing certain works or entering into long-term agreements. This ensures that leaseholders have a say in significant decisions that may impact service charges.

• Service Charges (Summary of Rights and Obligations and Transitional Provision) (England) Regulations 2007:

These regulations require landlords to provide a summary of rights and obligations related to service charges to tenants. It aims to improve transparency and help tenants understand their rights.

• The Commonhold and Leasehold Reform Act 2002 (Competition in Connections with Property Management Services) Order 2014:

This order introduces competition into the property management sector, allowing leaseholders to choose their own property manager under certain conditions.

• Consumer Rights Act 2015:

While not specific to service charges, this act outlines consumer rights, including the right to receive services that meet certain standards. It can be relevant in cases where service charges cover the provision of services.

• First-tier Tribunal (Property Chamber) Rules 2013:

These rules govern the procedures of the First-tier Tribunal (Property Chamber), which is the forum for resolving disputes related to service charges and leasehold matters.

It's important to note that these acts and regulations may be changed, so  you should consult the most recent versions for the latest information. Additionally, legal advice may be necessary to work through specific situations or disputes related to service charges in the UK.

When are service charges payable?

Service charges are often paid monthly, quarterly, or yearly. These charges go into one pot to cover things like building maintenance, insurance, and maybe even a fund for big future repairs. 

The timing and amount you are required to pay are usually mentioned in your lease agreement or a similar document. 

It's super important to keep an eye on what you're being charged for and make sure it's fair. If you're not sure, you should ask your landlord or property manager for details.

Sometimes, the charges might change for various reasons. You should be given notice before that happens. 

Remember, it's your right to know what you're paying for and why. If you ever feel unsure or think something's not right, don't hesitate to ask questions. Understanding service charges helps you be a smart and informed resident!

When are service charges deemed reasonable?

The reasonableness of service charges is controlled by various laws, particularly the Landlord and Tenant Act 1985.

It's essential to review your lease agreement and any related documents to understand what is considered reasonable in your specific situation. 

Key areas to note within the Act are:

Costs Incurred

Service charges should only cover costs that are reasonable and directly related to the services provided. This can include maintenance, repairs, insurance, and other agreed-upon services.

Consultation

Landlords are usually required to consult with tenants before making decisions on certain significant matters, especially those that may significantly impact service charges. This ensures tenants have a say in the decision-making process.

Transparent and Justified

The charges should be transparent, and you should be able to understand what you're paying for. Landlords are often required to provide a summary of your rights and obligations, as well as details about the costs incurred.

Competitive Pricing

If the landlord or managing agent enters into an agreement with a third party for services, the cost should be competitive. This is to prevent overcharging and ensure that you're getting a fair deal.

Quality of Service

The services provided should be of a reasonable standard. For example, if you're paying for maintenance, it should be carried out to a reasonable quality.

Legal Procedures

There are legal procedures in place for challenging service charges if you believe they are unreasonable. The First-tier Tribunal (Property Chamber) is a forum where you can dispute service charges if needed.

Consistency

The charges should be applied consistently to all tenants in a fair manner. It wouldn't be fair if one tenant is charged significantly more than others for the same services.

If you have concerns about the reasonableness of service charges, you have the right to seek advice and, if necessary, challenge them through legal channels. Always communicate with your landlord or managing agent if you have questions or need clarification on service charges.

How much do service charges cost?

The cost of service charges can vary widely based on factors such as the type of property, the services provided, and the location. However, according to estate agent Hamptons, at the halfway point of 2023, the average charge is £1,431, equating to £119 per month. 

Service charges are unique to each property, and the amount is typically outlined in the lease agreement or terms of the property management. For example, service charges for flats, apartments, or houses within managed developments often cover costs like communal area maintenance, cleaning, and security. In contrast, standalone houses may have lower or no service charges, as there are fewer shared facilities.

Larger developments with more shared facilities may have higher service charges to cover the increased maintenance and operational costs. For example, if your property has a concierge, gym, or communal gardens, these can contribute to higher service charges.

To find out how much service charges are for a specific property, you should check your lease agreement or contact the property management company or landlord. They should provide a breakdown of the costs and services covered by the service charges.

Are there any limits on service charges?

There is no specific legal cap or limit on the amount that can be charged for service charges. However, the reasonableness of service charges is a key principle outlined in the Landlord and Tenant Act 1985. This means that while there isn't a fixed maximum amount, service charges must be reasonable and justifiable based on the services provided and the costs incurred.

For certain major works or long-term agreements, landlords are required to consult with tenants before incurring expenses. This is to ensure transparency and allow tenants to express their views on proposed costs.

Landlords are obligated to provide tenants with a summary of their rights and obligations regarding service charges. This document should outline the general rules and procedures related to service charges.

Can you dispute a service charge?

Yes, you can dispute a service charge if you believe it is unreasonable or if you have concerns about how it is being calculated or applied.

Several factors could be deemed as unreasonable in regards to a service charge such as:

• Excessive costs

• Poor quality of service

• Lack of transparency

• Failure to consult

• Inclusion of unjustified costs

• Inconsistency

• Failure to provide information

• Lack of maintenance and repairs

• Unfair allocation

Remember, whether a service charge is deemed unreasonable is often subjective and depends on the specific circumstances of each case. If you believe your service charge is unreasonable, you have the right to dispute it through channels such as communication with your landlord, seeking professional advice from an expert property solicitor, or applying to the First-tier Tribunal (Property Chamber).

How to dispute a service charge?

Disputing a service charge involves a series of steps. Here's a general guide on how to go about it as well as a service charges dispute resolution flowchart that you can follow easily. 

Step 1 - Talk to your landlord or managing agent

Start by discussing your concerns with your landlord or managing agent. Clearly outline the reasons you believe the service charge is unreasonable and request an explanation.

Step 2- Review your lease agreement and documents

Read your lease agreement and any related documents. Understand the terms and conditions regarding service charges, what they cover, and any specific procedures for disputing charges.

If you're unclear about specific charges, request detailed information from your landlord or managing agent. They should be able to provide a breakdown of costs and explain how the service charge is calculated.

Landlords are required to provide a summary of rights and obligations related to service charges. Review this document to understand the procedures for disputing service charges and the options available to you.

Step 3- Seek professional advice

If communication with your landlord does not resolve the issue, consider seeking professional advice. A solicitor or surveyor specialising in leasehold matters can provide guidance and may be able to offer an expert opinion.

Step 4- First-tier Tribunal (Property Chamber)

If the dispute remains unresolved, you have the right to apply to the First-tier Tribunal (Property Chamber). The tribunal is an independent body that hears disputes related to service charges and other leasehold matters.

When preparing to dispute a service charge, gather evidence to support your case. To initiate the tribunal process, you'll need to complete the necessary forms and submit them to the First-tier Tribunal (Property Chamber). The tribunal will review the evidence and make a decision.

Before pursuing formal legal action, you may be encouraged to participate in mediation. Mediation involves a neutral third party facilitating a discussion between you and the landlord to find a resolution.

Can I claim back service charges?

Whether you can claim back service charges in the UK depends on the circumstances surrounding your situation. 

If you believe you were charged more than what is reasonable for the services provided or that the charges were applied incorrectly, you may have grounds to claim back the overcharged amount.

If there are charges included in your service charge that are not justified by the terms of your lease agreement or are not related to the services provided, you may have a basis for claiming them back.

For major works or long-term agreements, landlords are required to consult with tenants before incurring expenses. If the landlord failed to consult or did not provide adequate information, it may affect the validity of the charges.

If the services covered by the service charge were not provided adequately or were of poor quality, you might consider seeking compensation for the lack of service.

Can you refuse to pay a service charge?

Refusing to pay a service charge in the UK can have serious consequences and should be approached cautiously. While there are instances where you may dispute or challenge a service charge, simply refusing to pay without justification is generally not advisable.

Service charges are usually a contractual obligation outlined in your lease agreement. Failure to pay may be considered a breach of that contract.

This could lead to legal action, damage to your credit rating, and even the possibility of losing your home through forfeiture (in extreme cases).

Rather than withhold payment of service charges, it is sometimes better to pay them but make it clear (in writing) that you are paying under protest. This means making it clear that, while you are paying, you do not agree with the service charges and reserve the right to challenge them in court.

When can a landlord demand service charges?

Landlords can demand service charges as specified in the terms of the lease agreement. The timing and frequency of service charge payments are typically outlined in the lease, and landlords must adhere to the agreed-upon terms.

Landlords may require tenants to make advance payments for anticipated service charges. This is common, especially when service charges cover ongoing maintenance and expenses.

Landlords are also typically required to provide tenants with notice before demanding service charges. This notice may include details about the amount due, the services covered, and the payment deadline.

 If the landlord plans major works that will result in significant service charge increases, they are usually required to consult with tenants before proceeding. This ensures transparency and gives tenants the opportunity to express their views.

How long does a landlord have to recover service charges?

The lease agreement typically specifies the terms for the recovery of service charges. It will outline when and how service charges are to be paid, including any deadlines or schedules.

The Limitation Act 1980 imposes a general limitation period of six years for most types of civil claims, including the recovery of service charges. This means that, in most cases, landlords have up to six years from the date the service charges became due to take legal action to recover them.

Landlords are encouraged to request service charges in a timely manner, and delays in doing so may impact their ability to recover the charges. However, the six-year limitation period is the key timeframe for legal action.

If there are disputes or concerns about service charges, seeking legal advice and referring to the terms outlined in the lease agreement is advisable. Understanding the specifics of the lease agreement is crucial for both parties involved in service charge matters.

Can a leaseholder ask to see a summary of service charges?

Yes, in the UK, leaseholders have the right to request and receive a summary of service charges from their landlord or managing agent at any time. This is part of the transparency measures outlined in the Landlord and Tenant Act 1985. The summary of service charges provides important information about the costs incurred and the services covered.

Common causes of service charge disputes

Service charge disputes in the UK can arise from various factors, and they often stem from disagreements between leaseholders and landlords or managing agents. 

Common causes of service charge disputes include:

• Reasonableness of charges;

• Lack of transparency;

• Quality of services;

• Consultation issues;

• Inconsistency in charges;

• Failure to provide information;

• Legal procedures not followed;

• Major works and expenditures;

• Communication issues;

Service charge disputes are often complex and may require legal intervention. Leaseholders have the right to challenge service charges they deem unreasonable, and the First-tier Tribunal (Property Chamber) provides a forum for resolving such disputes in a fair and impartial manner. Seeking professional advice and maintaining clear communication can help prevent and address service charge disputes.

Service charge disputes and alternative dispute resolution

Alternative dispute resolution (ADR) methods are often employed to resolve service charge disputes without resorting to formal legal proceedings. Using ADR methods for service charge disputes can be beneficial, as they often lead to quicker resolutions and can help maintain relationships between landlords and leaseholders.

The common ADR methods include mediation; arbitration; adjudication; expert determination; early neutral evaluation; and negotiation. 

Get legal help for service charge disputes

Whether you're a leaseholder seeking clarity on your rights or a landlord aiming to uphold fair practices, Lawhive connects you with legal professionals experienced in service charge matters. 

With a commitment to accessible and affordable legal support, Lawhive ensures that your concerns are heard, and your rights are protected. 

Contact us today for a free case assessment and no obligation quote and get started today.