Service Charges.
By far the most common leasehold issue is the level of service charges. By law service charges must represent the actual expenditure incurred in providing the services stipulated in the lease and the cost must be reasonable.
The lease may also require that leaseholders contribute towards a sinking or reserve fund to provide for the future maintenance of the property. These contributions must be reasonable and would usually be based on a professional survey of the property. Service charge monies and reserve funds are held by the landlord on automatic statutory trusts and must be retained in separate bank accounts designated for the benefit of the relevant leaseholders.
Leaseholders have statutory rights in relation to service charge demands. These include the right to obtain a summary all the costs and the right to look at the accounts, receipts and other documents on which they are based. Leaseholders have a right to be consulted on all major works that exceed £250 per leaseholder and on any long-term agreements exceeding £100 per leaseholder year.
A landlord can only recover costs that are notified to leaseholders within 18 months from the time the costs were incurred.
The usual remedy to leaseholders subjected to unreasonable service charges is an application to the local Leasehold Valuation Tribunal (LVT) which has jurisdiction to determine such claims. LVT’s are not unfriendly places and are used to dealing with leaseholders in person. An application to the LVT incurs a flat fee of two or three hundred pounds and unlike the civil courts leaseholders would not generally be liable for the landlord’s legal costs.
Rent for Manager's Accommodations.
It is commonplace for landlords and managing agents to charge leaseholders rent for the use of the caretaker’s or house manager’s accommodation and office. Whether or not such a charge is justified depends upon the precise wording of the lease. This issue has already come before the LVT, the Lands Tribunal and the Court of Appeal and the guiding principles are now well defined.
Unless a specific rental charge is spelled out in clear and unambiguous terms in the lease, using words an average man in the street would readily understand, the charge is not justified and cannot be applied.
Some leases allow 'the cost of the warden’s accommodation' to be included under service charge expenditure. Although this is intended to refer to the cost of upkeep and maintenance, profit-seeking landlords have argued that this also entitles them to charge a rent. They argue that in providing a flat for the warden or manager they gave up income that would otherwise be derived and they seek to recover this ‘income foregone’ as a cost. The Court of Appeal has rejected this argument and determined that whereas income foregone may well be a ‘cost’ it is not ‘expenditure’ of the type to be included in the service charge.
It is also relevant to point out that in most blocks of retirement flats the developer of the estate would usually have already obtained compensation for the provision of facilities such as house manager’s accommodation, guest suite, lounge and laundry etc. Insofar as the provision of these facilities is usually essential in order to obtain planning consent, the compensation to the developer is the increased value of the land due to planning consent, without which the development could not proceed. These requirements are often incorporated into section 106 planning agreements (previously known as section 52 agreements) otherwise known as planning benefits for that reason.
Some recently drafted leases state clearly and specifically that a rent is payable for some or all of the above facilities. A developer may give up a certain amount of space to provide these facilities but as stated that is usually compensated at the planning stage and in the opinion of this website it is unethical and unfair to make an additional recovery from leaseholders, especially retired pensioners.