What is service charge?
Essentially service charge is a payment made by the tenant to the landlord for costs that have been incurred in relation to services provided to the property. Charges may include costs associated with general maintenance, repairs, insurance, community central heating, lighting, cleaning of the common areas and gardening/landscaping.
As a landlord am I obliged to provide services?
This is subject to what the lease provides. Some leases will specify services that the landlord is required to provide. Others will mention which services the landlord may provide without being under a duty to do so.
As a tenant do I have to pay the service charge?
The lease may specify how much the tenant is liable to contribute. Some leases will provide for how service charges will be apportioned between the tenants. Other leases will simply require the tenant to pay a fair proportion.
There is statutory protection for tenants. Landlords may only include costs and service charges to the extent that they are reasonable.
What is considered reasonable?
- Costs must have been reasonably incurred (not necessarily to a reasonable amount).
- Any works or services to which they relate, such works must be to a reasonable standard.
If the matter of service charges cannot be resolved between the landlord and their tenants, either may apply to the First-Tier Property Tribunal. Section 27(a)(1) of the Landlord and Tenant Act 1985 provides that either the landlord or tenant may apply to the First Tier Property Tribunal to determine:
- Service charge payable.
- Costs incurred for the services, repairs, maintenance, insurance and management are payable.
An application cannot be made in respect of a matter that has been:
- Agreed or admitted by the tenant.
- Is subject to or will be subject to arbitration pursuant to a post-dispute arbitration agreement.
- Determined by the Court or by an arbitration tribunal pursuant to a post-dispute arbitration agreement.
It is important to note that a tenant is not regarded to having agreed or admitting to liability by making payment of service charges. If there has been an expressed agreement by the tenant regarding the service charges they are precluded from making an application under section 27 (a) (1) of the LTA 1985, however, an agreement by the tenant is void if the agreement purports to provide for a determination on any question which is subject to an application under section 27(A)(1) or section 27(A)(3) LTA 1985 on a particular matter or evidence.
In some situations some leases provide that the apportionment of service charges will be determined by a third party, whose decision will be binding. If no agreement has been reached with the tenant on a fixed apportionment e.g. such as a percentage or a formula, the recent cases of Wimbledon Arena Village v Wild and Others 2014 UKUT163LC and Gater and Others v Wellington Real Estate Limited and LLP Commercial Limited 2014 UKUT0561LC rendered such clauses to be void. This does not, however, mean that the lease is void but simply that the lease is to be read as if third party provision has been struck out.
It is ever more imperative for landlords to work with their tenants and by being more transparent and open on service charges. Restricting information to the tenants will only fuel their scepticism and resentment towards their landlord, which are the hallmarks behind applications before the FTT.
The parties should read the terms of the lease as a whole to understand their responsibilities and applications relating to services to be provided in the liability in consideration and deployment of such services.
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