Services Charges: Payback time?

Leasehold specialists are often asked questions like “I want to extend my lease, but I don’t have to worry about all the unpaid service charges, do I?”

Well, unfortunately, yes you will. At completion of the new lease the landlord can ask for all and any arrears to be paid off and in fact the landlord can ask for ‘reasonable security’ for any other sums that are due to him.

If the service charge for a residential property is in dispute then the First-tier Tribunal (FTT) has the ability to determine whether or not some or all of the service charge is payable.

However, getting to the tribunal can take time and a statutory lease extension needs to be completed within a strict four-month time limit.

The simplest solution is that the parties agree something in relation to the unpaid charges. But if the issue was contentious before, in practice it is perhaps unlikely to be resolved by agreement.

Fortunately the legislation (the Leasehold Reform Housing and Urban Development Act 1993) provides that the landlord can be offered reasonable security for these costs.

In other words, the solicitor for one of the parties can hold a sum of money on account equal to the disputed amount, and can give an undertaking to pay this amount or such lesser amount as is determined by the FTT within a certain specified time frame of the final decision. The tenant will also normally have to give an undertaking to make the application to the tribunal within a specified period.

This can provide a mechanism for completion to take place, but also preserve the practical position regarding a fight over the service charge. However, an unreasonable counterparty may refuse to agree a suitable mechanism to deal with this, or there may be a debate about what constitutes ‘reasonable security’. In these cases a court application may also be needed to protect the tenant’s position.

Perhaps the first piece of guidance has to be, if possible avoid the problem in the first place and certainly don’t think that extending the lease will be an automatic way out of any problem service charges.

It goes without saying therefore, that if you are thinking of extending your lease and are aware of a service charge dispute, you need to ensure the practice you engage to help you has the specialist skills to deal with all of the issues that may arise in your case.