Disputes over Service Charges

by Tim Bishop on August 15, 2013

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Leases will almost inevitably involve service charges of some kind which leaseholders should be aware of when buying the lease. This doesn’t stop service charges causing a huge number of arguments between leaseholders and freeholder though and it is therefore important that individuals are aware of the channels they can use to challenge service charges if need be.

If a freeholder is deemed to be acting unreasonable then the Landlord and Tenant Act stipulates that legal action can be taken and it is the same if the service charge is considered to be unfair or completely disproportionate. Furthermore, if leaseholders wish to see supporting financial evidence for something included in the charge, they can demand it from the freeholder.

When delivering the service charge the freeholder must include details of leaseholder rights and how the amount can be disputed by the leaseholder. Failure to disclose such information results in the leaseholder being able to refuse to pay the charge. Equally, if a summary of all costs included is not given to the leaseholder within 6 months, the charge need not be paid. Where more than 4 flats are involved, the approval of an accountant will be required to show that the charge is reasonable and if information related to charges is not provided to leaseholders within 3 weeks of being requested a fine of up to £2,500 can result.

If the leaseholder believes that the charge is unreasonable an application to the Leasehold Valuation Tribunal can be made. The LVT will then weigh up whether or not the charge was a fair reflection of the direct costs of maintaining the property and the administrative work done by the freeholder before making a decision. The LVT will also consider whether the work was necessary and completed satisfactorily and whether the leaseholder was given sufficient notice. Costs will be made unrecoverable if the LVT decides that the charge was indeed unreasonable under the terms of the Landlord and Tenant Act 1985.

Refusing to pay the service charge can be dangerous game unless the leaseholder is absolutely sure that they are within their rights to do so because this can be interpreted as a breach of the lease which justifies the landlord bringing forfeiture action against the leaseholder to evict them and end the lease. This is why it is so crucial that leaseholders have expert leasehold property solicitors on their side to advise them on how to act in such situations. Thankfully, forfeiture action is only valid if the charge is reasonable and the leaseholder has somehow agreed to pay it. The value of the charge is also important if the freeholder is to be able to serve a valid 146 notice and thus pursue forfeiture action. Once such a notice is received, leaseholders should pay the charge because they can face financial ruin and homelessness if they do not. If the leaseholder has inadequate funds, they should approach their mortgage lender who may help out for fear of taking on such a large toxic asset.

If you are looking for legal advice on service charge disputes, make sure you appoint a leasehold property specialist.

Tim Bishop is senior partner of Bonallack and Bishop – Solicitors specialising in lease extension, lease enfranchisement and service charge disputes. For more information visit their website at http://www.leaseextensionuk.co.uk or call them on 01722 422300.

Tim Bishop
Having qualified as a Solicitor in 1986, Tim Bishop is a legal entrepreneur who owns law firm Bonallack & Bishop. Find out why you should choose the property law solicitors at Bonallack & Bishop: Visit www.bishopslaw.co.uk.
Tim Bishop

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