© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
Property managers frequently complain that they would be able to manage their properties far more efficiently if only lessees would pay their service charges on time. Getting lessees to pay what is due is for some property managers a full time job, leaving little time to spend actually doing what they do best (i.e. manage properties). By Shaun Jardine
Services charges usually encompass a variety of headings but generally will include: -
When dealing with any service charge issues and lessees who will not make payment, there are effectively two areas property managers should consider, the terms of the lease and statutory rules and regulations.
Read the Lease!
I know that property managers will have heard this a hundred times before, indeed whenever you attend any seminar on a property management related issue, the learned speaker will always tell you that the starting point is “read the lease”. This article is no exception.
Granted, it sometimes appears that some leases seem have been drafted by the Youth Opportunity child who happened to be at the solicitors on a week's Work Experience.
However, the procedure that property managers first have to consider is what is set out in the lease.
Property managers should never follow an in-house procedure or a landlord’s or residents associations instructions just because it is convenient to do so.
The Terms Of the Lease
When looking at the terms of a lease, the provisions that relate to service charges are usually the following: -
Definitions – look at how the properties and common parts are defined.
Provision For Payment – sometimes the service charge is payable as rent. This is important for enforcement purposes.
Interest – are you entitled to claim interest for late payment?
Tenant’s Contribution – how is it calculated? Is it a fixed percentage or a “fair or reasonable proportion”? Is it based on floor area? Do the percentages add up? In one lease I have seen, once all of the percentages were added, the lessees were being charged 116%!
Time for Payment – when does the lease say the payments have to be made?
Landlords Obligations – what are they?
Provisions Relating to the Service Charge – Quite often these can make references to how the service charge is calculated. Whether accounts/
certificates have to be prepared. Whether Landlords are entitled to seek interim payments/advanced service charge payments. There may be a list of services that the lessee is likely to contribute to. It may provide for a sinking fund.
It depends. The starting point as to the recoverability of managing agent’s charges is, as with all other costs, the terms of the lease.
In Embassy Court Residents Association Limited –v- Lipman, (1984 271 EG 545.CA) the Judge stated “it is perfectly clear that if an individual landlord wants to (employ managing agents) and to recover the costs from the lessee, he must include explicit provision in his lease”. If the lease makes no provision you may not be able to recover them.
Most of the statutory protection that property managers need to be familiar with is contained in the Landlord & Tenant Act 1985 as amended most recently by the Commonhold and Leasehold Reform Act 2002.
Others, which are relevant, include: -
Service charges are defined in Section 18 of the 1985 Act as an amount payable by a tenant of a dwelling as part of or in addition to the rent;
(a) which is payable directly or indirectly for services, repairs, maintenance or improvement or insurance or the Landlord’s costs of management and
(b) the whole or part of which varies or may vary according to the main relevant costs.
(c) the relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the Landlord or a Superior Landlord in connection with the matters for which the service charge is payable.
(d) For this purpose – (a) costs includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, to be incurred, in the period for which the service charge is payable or in an earlier or later period.
Section 166 of the Commonhold and Leasehold Reform Act 2002 now require landlords to tell lessees how, when and why they have to pay their ground rent. The old rule used to be that the lessee would have to pay the rent without being asked – after all they knew what was in the lease.
Ground rent demands now: -
Administration Charges are a new concept that many property managers are coming to terms with. Basically, an administration charge is an amount payable by a lessee of a dwelling as part of, or in addition to the rent which is payable, directly or indirectly.
Administration charges can be levied in a number of different ways: -
Variable Administration Charges are essentially an administration charge payable by a tenant, which is neither specified in a lease nor calculated in accordance with the formula specified in a lease. Variable Administration Charges are only paid if they are reasonable.
Demands for Administration Charges have to be given to tenants in a prescribed form. If they are not, then payment can be withheld.
If the amount of the Administration Charge is fixed in a lease or is calculated in accordance with the formula of a lease, the Leasehold Valuation Tribunal has the power to vary the lease if they consider the formula to be unreasonable.
The Leasehold Valuation Tribunal is able to deal with almost all service charge disputes. These include: -
a. whether a service charge is payable;
b. by whom it is payable;
c. to whom it is payable;
d. the date on which it is payable; and
e. the amount in which is payable.
The LVTs have jurisdiction to look at service charges that have been paid in the past and also charges that are being demanded in the future.
1. Some do not read or understand the lease or understand the law.
2. Some fail to abide by the RICS Code of Practice. In a recent LVT decision (Bank Chambers –v- Royal Bank of Scotland), (LON/00BK/LIC/2004/0039) The LVT Bulletin October 2005, management charges were reduced by around £18,000 by an LVT who were particularly critical of the managing agents who were unfamiliar with the RICS Code of Practice. Whilst the code may be out of date, you ignore it at your peril.
3. More sophisticated lessees. Lessees are becoming far more familiar with how service charges are calculated and what property managers can and cannot get away with. I am sure many people have read some details of the case involving Dr Schilling at Canary Wharf (LRX/65/2005) The LVT Bulletin February 2006. The Daily Telegraph on Saturday 28 January 2006 devoted many column inches to the case. You can bet your bottom dollar that some lessees read it and are waiting for their property managers to slip up!
4. Is the charge you are seeking to recover a legitimate one? In many cases the lease may not be clear. An item of expenditure may be an improvement and the lease may not entitle the landlord to recover costs of improvement under a lease.
5. Does the lease have any requirements as to certification of service charge accounts? One lease that we recently reviewed for a domestic garage required the service charge accounts to be verified by way of an auditor’s certificate. The costs of an auditor were almost equal to the rent!
6. Does the demand relate to expenditure which is irrecoverable under Section 20B of the Landlord & Tenant Act 1985 (i.e. costs incurred more than 18 months before the demand?)
7. Have Consultation Requirements under Section 20 of the Landlord & Tenant Act 1985 been complied with or dispensed with?
8. Are there issues of reasonableness arising under Section 19 of the Landlord & Tenant Act 1985?
9. Is there a Counterclaim of set off? Is the Landlord in breach?
10. Section 146 Notices are no longer automatically available as an enforcement tool. Since 28 February 2005, it has been impossible to forfeit a lease on the basis of rent, service charge or administration charge arrears unless the unpaid amount: -
1. Has been outstanding for more than three years,
2. Exceeds £350.
Landlords cannot forfeit a lease for failure to pay service charges or administration charges unless: -
a. An LVT has made a determination.
b. The Tenant admits that the sum is due.
If these procedures are not followed then Section 146 Notices are redundant.
If the lessees have no legitimate reason not to pay do not be afraid to unleash the dogs of litigation. If property managers get a reputation as a soft touch those that are paying this quarter may not be when the next demand is sent out.
Shaun Jardine is a Partner,
Brethertons Solicitors
Tel: 01295 270999