Know your lease!

The lease will tell you what expenditure can be recovered as a service charge, how that expenditure can be recovered and what proportion of that expenditure the lessee is liable for.

Most modern leases will contain a list of recoverable expenditure, either in a separate schedule, or by reference to the obligations of the landlord or RMC. If the lease does not clearly and plainly specify a particular work or service in a list of recoverable matters, as a general rule, the cost of those works or services will not be recoverable.

It will often be necessary to determine the extent of the landlord’s (or RMC’s) repairing obligations; since the landlord (or RMC) will generally seek to recover the costs it incurs in performing those obligations.

Identifying who is responsible for repairing certain parts of a building is not always an easy task - windows, balconies and skylights frequently give rise to disputes - but there are a number of helpful cases for guidance.

In Sheffield City Council v Hazel St Clare Oliver, the Lands Tribunal determined that a responsibility to repair the “structure” and “exterior” of a building extended to the windows, and, in Ibrahim v Dovecorn Reversions, the Court of Appeal found that the lessee of a roof terrace was responsible only for the top surface (the tiles, effectively), while the landlord was responsible for the structural parts (the timber joists, the screed, the asphalt, etc.).

The landlord will also want to ensure that he does not go beyond his obligation to “repair” and “improve” the premises. It is not uncommon for leaseholders to refuse to pay a particular cost, because the work to which it relates constitutes an “improvement”. However, it is not always straightforward.

Leases will occasionally allow for the recovery of the cost of improvements (i.e. the replacement of old Crittall style windows with uPVC windows). Where it is necessary to improve a building to prevent further disrepair from occurring, that cost will often be recoverable.

Equally important is the contractual procedure or mechanism pursuant to which the service charge can be recovered. Most modern leases follow a similar pattern: a budget, or estimate, is produced at the beginning of the (defined) accounting year, followed by advance/interim payments “on account” of the anticipated expenditure for that year. At the end of the accounting period, an account will be produced of the actual expenditure incurred during the course of that year, followed by a balancing charge or credit.

It is important that whatever procedure is specified in the lease is followed precisely, otherwise it can have serious consequences.

For example, in Southwark L.B. v Woelke, the landlord had erred in billing the service charges for major works separately from more routine recurring service charges. As a result, the sum claimed was not payable.