We have dealt with several instructions to assess the reasonableness of service charges presented by local authority landlords to private leaseholders – the service charge demand can be very high indeed and it was interesting to see that this was picked up by Radio 4 some time ago.
Since August 2014 social landlords / freeholders are limited in the amounts that they can claim – £15,000 within London and £10,000 outside London (as at 2015). Social landlords also have the power to vary, waive or reduce service charges subject to varying criteria. Here’s a good article that covers this in detail. Nonetheless if the charges are still excessive, they can often be challenged.
We could write reams about this… this is intended as a quick and very general guide.
Challenging service charges can be difficult and expensive. Challenges are made to the First Tier Property Tribunal (FTPT) and if the tribunal considers that the charges are wrong or disproportionate then they can assess them at a lower level. The FTPT may also consider whether the correct process was followed, the bills correctly drafted and served and whether the works was, in fact, necessary at all.
If you are thinking of contesting a service charge very often the first call is to a chartered surveyor. When we are asked to consider a service charge the very first thing we do is to check that all of the required Section 20 consultation notices have been issued. To be honest, this formal process is very rarely flawed in local authority property, but we do find that costs and work descriptions can change between notices. Any error in this process can limit a freeholder’s ability to claim service charges. You should check these. The rules are set out in the Landlord & Tenant Act.
Ideally, we will have been invited to inspect a property by a lessee before the works start – this enables us to confirm the condition of a property and to determine whether the repair is necessary or otherwise. We acted as expert witness in one case where the whole cost of re-roofing was rejected (it was a lot of money) because our early inspection and report proved that the roof was in sound condition and the work was unnecessary. These inspections can be costly, but if you split the cost with other lessees in the block, the fee per flat can be reasonable.
We will then review the lease documents in detail – this is important because it sets out what the freeholder can and cannot claim as a service charge item and a leaseholders liability to pay it. Sometimes we find that the lease precludes “improvements” being a service charge recoverable item and if these have been included, then they need to be removed from the final bill.
Only then will we carry out a site inspection. Occasionally, we will find that the works have all been completed and carried out to a good standard – in those cases we will advise that the charges are “reasonable” if all other criteria have been met. More often than not though we find problems – here’s a typical selection:
- Gutter replacement being partially completed – rather than full replacement claimed and only a down pipe replaced
- Works simply not done, but costs claimed – most recently brick bin stores left dilapidated
- Poor quality workmanship – especially decoration
- Works started but not finished
- Poor finishing and making good
- Non-compliance with building regulations and planning regulations
- Specified materials not used and cheaper material substituted
- Works of improvement claimed as repair – this could include things like communal satellite TV installation and security installations
Part of the problem is that very often costs are assessed on an estate wide basis, then simply divided without regard for the actual work done on individual blocks – some will need more and some will need less.
We nearly always find that the administration costs are excessive – our experience says that a full design and project management team will usually be around 18% of a project value, but we regularly see 25% or more. We occasionally see accounts where the contingency has not been omitted as it should have been.
So what happens when we find irregularities and problems? – in most cases you will need legal advice (always use a specialist housing/leasehold lawyer), you will need an expert witness report from a surveyor and you may take the case to the FTPT for review. They will hear evidence from both sides and make a decision that may uphold, vary or reduce service charges. This can be expensive and costs are not always recoverable.
(Originally published by Steven Way, 27 November 2015)