Service Charges in Residential Leases: FAQs
Service charges are forever a hot topic in the world of property disputes, and it remains one of the most contentious areas between freeholders and leaseholders, particularly in long residential leases. Danny Turpin, Associate, discusses frequently asked questions regarding service charges on long residential leases.
Service charges are forever a hot topic in the world of property disputes, and it remains one of the most contentious areas between freeholders and leaseholders, particularly in long residential leases.
Picture the scene, you’ve purchased a property, it might be a flat in a purpose-built block, or it might be a flat in a converted building, you’ve paid the seller for the flat and you may be forgiven for thinking that is the end of it. Unfortunately, it isn’t. What has actually been purchased is ownership of that flat for a term of years, a leasehold interest. Somebody else (it may be an individual or a company) owns the building and probably any communal areas, the freeholder.
The term of a leaseholder’s interest in the flat will tick down year on year and, eventually, pass back to the freeholder. Thankfully, that rarely happens in practice, and there are statutory mechanisms available to leaseholders to force an extension of their proprietary interest.
Whilst the term of years is ticking down, a leaseholder will also be responsible for paying yearly service charges to the freeholder. The service charges for which a leaseholder is responsible will be governed by the lease. The lease should be viewed as a contractual agreement between the freeholder and the leaseholder in this context.
Service charges, generally, will be for things such as insuring the building and repairing and maintaining any communal areas, though service charges can vary drastically from building to building and a building with car parking, large communal gardens, concierge and reception services and amenities such as swimming pools and gyms will likely command larger annual service charges.
We have sought to set out some frequently asked questions below regarding service charges on long residential leases:
Q: Do I have to pay annual services charges, even in circumstances where I have paid for the flat?
A: Yes, unfortunately service charges are part and parcel of owning a leasehold interest in land, they are, however governed by the terms of the lease and strict statutory protections. Failure to pay service charges can result in the freeholder taking action against a leaseholder and, in the most extreme cases, a freeholder can forfeit a long residential lease after it has jumped through various legal hoops.
Q: Can the freeholder charge whatever they like?
A: No, service charges are not a blank cheque for a freeholder. Costs put through service charges by the freeholder must have been reasonably incurred and any work or services to which they relate must be of a reasonable standard.
Q: How will I know what I am being charged?
A: Freeholders are required to make service charge demands and send them to the leaseholders. Whilst they do not have to be in a prescribed form, they must contain certain information and be demanded within a certain period of time from the date the relevant work or services to which the demands relate were undertaken or provided.
Q: I have no idea what the service charges relate to, can I seek further information from my freeholder?
A: Yes. Leaseholders have various statutory rights to seek further information about what they are being charged for, for example, leaseholders can request a summary of the service charge account; inspect accounts, receipts and other documents relating to service charges and request a summary of insurance cover and inspect insurance documents.
Q: Can I challenge service charges which are being demanded?
A: Yes. Applications in relation to service charges can be made to the First-tier Tribunal by either the landlord or tenant. The Tribunal can decide if the charge is payable, who should pay it, who should receive it, when it is due, and how much is owed.
The above is a general guide to service charges, and each case will need to be carefully assessed on its own merits. If you require advice on lease extensions specifically, please contact Jake Mowatt or Danny Turpin. If you are a landlord seeking payment of service charges or a leaseholder wishing to challenge service charges please do not hesitate to contact our Property Disputes Team via email at info@leathesprior.co.uk or by telephone at 01603 610911.
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