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Residential Service Charges: A Brief Guide

Thursday, 3 October 2013

Residential service charges are amounts payable by the tenant of a property either as a constituent part of or in addition to their rent payments. Service charges generally cover the cost of services provided by the landlord during the course of the lease.

Service charges can be fixed or variable. The latter often form the basis of disputes between landlords and tenants so it is important for parties to understand the basics to enable smooth management of the property.

Costs Must be Reasonably Incurred

The Landlord and Tenant Act 1985 and 1987 protect tenants of residential properties from excessive service charges.

The landlord may request that the tenant pay service charges, subject to the terms of the individual lease for costs that may be reasonably incurred in relation to property maintenance, repair, insurance, management and other services, as set out in the lease.

In addition to the costs being reasonably incurred by the landlord, any work carried out must be of a good standard. These factors are determined by the Property Chamber of the First-tier Tribunal (FTT) in the event of a challenge to the service charge costs by the tenant.

The FTT, in determining whether the service charges incurred by the tenant are reasonable, can take into account the financial impact of the charges on the tenant, the potential phasing of the work in order to spread costs and other relevant considerations.

Consultation with the Tenant

Prior to entering into contracts for the provision of services or the carrying out of particular works, the landlord must determine whether they need to consult with the tenant.

Consultation is required where the landlord decides to select the provision of services under a qualifying long-term agreement (QLTA) - a service contract for more than 12 months - and the amount payable by any one tenant for will exceed £100 in any one-year. It is also required where any single tenant’s total contribution toward particular works exceeds £250, making them ‘qualifying works’.

As part of the consultation, the landlord must consult with the tenant by giving notice to the tenant directly or to a recognised tenants’ association outlining the necessity of the works. It must also follow more detailed rules according to the circumstances such as obtaining estimates for services, issuing a statement setting out the estimated costs of works, allowing estimates to be inspected while giving consideration to any written observations provided in response or offering reasons for selecting a particular contractor.

Compliance with Consultation Requirements

The FTT has the authority to dispense with the above consultation requirements if it deems it reasonable to do so. In deciding the reasonableness of the circumstances, it will take into account whether the tenant suffered any prejudice due to the landlord’s lack of compliance with the requirements.

Failure to comply with the consultation requirements where the FTT has decided not to dispense with them, will limit the landlord’s ability to pass on the costs of the services to the tenant. The statutory maximum the landlord will be able to recover is £100 for each tenant for each year for QLTAs and £250 for each tenant for qualifying works.

Service Charge Demands

Upon completion of the works, service charge demands made by the landlord must be made within 18 months. If the demand is provided later than this, the landlord will be unable to recover the cost of the works from the tenant. Landlords looking to ensure best practice regarding service charges or tenants wishing to challenge service charges should seek professional advice; for more information contact Peter Gourri today by email or telephone 0207 611 4848.

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