QUESTION
I have a query about the rationale for service charge amounts and whether they can be changed. I live in a block of 50 flats, where the owners have share of freehold. When I purchased my flat, I knew what percentage I paid and could see what other flats paid, but not on what basis. I assumed it was by size of the flat. I have since learned that there is no logic: it's not by square footage, floor, or anything that might make sense. Apparently, the original owner distributed the service charge by favouritism or by whom he knew. So, I am paying 3% for a flat that is about 1000 square feet, whereas someone else is paying 1.7% for 1,500 square feet. A more obvious example of the inequity is that the flat next to me, which is a mirror image of mine, pays only 2.125%. I think that the service charges should be based upon some logical factor, such as square footage. I have been told that in order to have this happen, every owner would have to agree, which will never happen.
My question is, if I took a claim to the Leasehold Advisory Service, would I have any chance of having the service charges changed? Or is this something the building's trustees could change? What would be a logical or fair basis for determining the service charge?
Gene Johnson
ANSWER
Service charges can be calculated in a number of ways, of which square footage is a common one. They can also be calculated in accordance with the number of habitable rooms in the flat, in line with the rateable value of the flat, or simply split equally between the flats in the block. Unfortunately, there is nothing to prevent an owner applying a wholly arbitrary – and potentially very unfair – split of the service charge across the block.
However the service charge is calculated, the lease will specify the percentage of the service charges that are to be paid by each flat.
In terms of amending the percentages, there are two potential options to consider. Firstly, there is the option to vary the lease by agreement. This would require the preparation of a Deed of Variation and all leaseholders in the block would need to agree to the variation. As the reader acknowledges, it may be difficult to get leaseholders to agree to a variation that is to their detriment.
Secondly, an application can be made to the Leasehold Valuation Tribunal under part IV of the Landlord and Tenant Act 1987. The best chance of success will come if the individual percentages fail to add up to 100 percent (it does happen!). In this instance, an application can be made under Section 35(2) on the basis that the Lease ‘fails to make satisfactory provision with respect to the computation of service charge payable under the Lease’.
It is unclear as to whether the percentages for the block in question add up to 100%.
If the percentages do add up to 100%, then an application to vary the leases would need to be made instead under Section 37. Unfortunately, an application under Section 37 would need support from at least 75 percent of the leaseholders – and opposition from no more than 10 percent.
So, in summary, there is a potential loop-hole if the total percentages do not add up to 100 percent. Failing this, the reader is left with trying to marshall support from 75% of fellow leaseholders.
Cassandra Zanelli – Brady Solicitors
QUESTION EXTENDED
There has been an odd swerve in this situation. I sit on the board of my building, and recently one of our flats asked for a lease extension. Upon investigation, we found that although they are a shareholder, they have only been paying £350 a year, which was meant to be an interim charge included within a 2% service fee. Somewhere along the line, the 2% service fee was never recorded by our managing agent nor collected, so she has only been paying the £350.
Now, my interpretation of this is that collected service charges are now 102%, which meets the criteria for a potentially successful application to the Leasehold Valuation Tribunal. Would your experts agree with this?
Our solicitor is suggesting otherwise, stating that 'We divide 98% between the rest of you - their 2% representing a first charge.'I don't understand this, as each shareholder currently pays an unequal share of a total 100%.'
ANSWER EXTENDED
If the sum of the service charge percentages is not exactly 100%, then it is indeed correct that an application can be made to the LVT. Unfortunately, from the information given above, it is impossible to confirm the exact sum of these percentages.
The only sure-fire way of finding this out will be to get all the leases and analyse the percentage information. If they add up to 100% then the LVT is a no-go. If however your suspicions are correct and they don’t add up to 100% then off to the LVT we go.
Leases are available from the Land Registry but they aren’t cheap at a cost of up to £24 per lease. Your solicitors should however be able to help you secure them at a more favourable rate. A cheaper option is to ask the managing agent for a matrix list. This can be a useful guide to service charge percentages but our experience of handling cases in the LVT suggests there is no guarantee of accuracy!
With regard to the leaseholder only paying £350, this sounds like a straightforward invoicing mistake by the managing agent: she may only have to pay the £350 as an interim payment but should then be sent a balancing invoice for the remainder. This is unlikely to be grounds alone for an LVT application but could be included in an application to rectify any incorrect service charge percentages. Again it is hard to comment without sight of the actual lease.
So, in summary, if there is a strong suspicion that the service charge percentages fail to add up to 100% it could be well worth obtaining the leases and analysing the stated percentages. Be wary though that this can be an expensive exercise for large blocks.
Cassandra Zanelli – Brady Solicitors
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