Q&A - Service Charge Dispute


Our Freeholder has lodged a High Court action to "Strike out" our RTM.

The reason being that our "complex estate" is made up of several structurally separate buildings. The RTM says it is one building the Freeholder says it's several.


The Freeholder has since October 2016 demanded that Service Charge payments be paid to them, as the Freeholder is legally responsible for the building. The RTM state they are legal and also demand the service charge.

I have advised both parties that until this dispute is sorted I have been paying my Service Charge into a separate account. What should I do?


Acquiring the right to manage (“RTM”) is quite simple where the qualifications for RTM are all met.  One of the qualifications is that the premises the subject of the RTM claim comprise a self-contained building or part of a building, with or without appurtenant property.  In order to be a “part of a building” the premises must be structurally detached.  If the premises consist of two or more buildings, then the tenants would need to undergo the RTM process separately for each building.  Your freeholder is trying to stop the RTM process by arguing that the premises do not qualify for RTM because they comprise more than one building.   

Before it acquires the right to manage, the RTM company must serve a notice of claim on the freeholder (“Notice of Claim”).  This notice will state the date the RTM company proposes to take on the right to manage (known as the “acquisition date”).  The acquisition date is the earliest date the RTM company can start to manage the premises.  It must be at least four months after the date the notice of claim is served.   The RTM company is only entitled to collect the service charge from the tenants after the acquisition date.

It seems most likely that your freeholder issued proceedings after receiving the Notice of Claim.  If so, service charge should be paid to the freeholder because the RTM company will not yet have acquired RTM and therefore is not entitled to collect service charge.  However, we cannot state this conclusively because it is possible (albeit unlikely) that the freeholder commenced its Court action after the RTM company acquired the right to manage, and that it wants to take the right to manage away from the RTM company.  If that is correct, the RTM company will be entitled to collect service charge payments from tenants unless and until the Court rules in favour of the freeholder.

Because the position is not clear, your proposal to pay service charge into a separate account sounds like a good idea.  You should write to representatives of both the freeholder and the RTM company, and tell them what you have done.  You should also ask the freeholder’s and RTM company’s representatives to let you know once the High Court action has finished and what the Court has determined.


Scott Goldstein is Senior Associate and Head of Property Dispute Resolution at B P Collins LLP

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