Daniel Greatrix, a principal associate solicitor in our property dispute team, has acted for a commercial landlord of mixed-use premises and successfully avoided a challenge to the ‘reasonableness’ and recovery of billed service charges, exceeding £20,000.
The landlord is the owner of a shopping centre in Wickford, the upper parts of which are residential. The dwelling units are let on a number of long residential leases, via the landlords tenant (the ‘head leaseholder’) and it is the service charges in the residential context that were in dispute.
An application was made by head leaseholder to determine its liability to pay, and the reasonableness of service charge, pursuant to Section 27A of the 1985 Act. Although the basis of the application was not entirely clear, the challenge was distilled into the following issues;
- (a) compliance with Section 21B of the 1985 Act, being the provision of notes accompanying any demand,
- (b) consultation requirements pursuant to Section 20 of the 1985 Act and were these adhered to,
- (c) reasonableness of insurance sums and (d) reasonableness of cleaning costs.
The landlord asserted that;
- (a) they complied with the provisions of the 1985 Act,
- (b) Section 20 consultation requirements were of no relevance as the challenge applied to budgeted sums only and / or the necessary financial triggers were not met,
- (c) it is not necessary for the Landlord to show that the premium is the lowest that can be obtained, (d) there was no evidence before the Tribunal of a consistent and substantial issue with cleaning standards.
At trial, the head landlord abandoned points (a) and (b), whilst after only preliminary testing of the evidence, the head landlord then abandoned point (d). The only live issue remaining being that of the reasonableness of insurance premiums, for which the Tribunal found that it had been correctly demanded in accordance with the lease and appeared reasonable.
Summary
The ability to charge and recover service charges in the residential context is well regulated by s18 through 30 of the 1985 Act. With many pitfalls to recovery including rights to be consulted, the reasonableness of the costs and time limits from incurring costs to the date of demand. Additionally, leaseholders have statutory rights to information, that can have far reaching consequences if not provided, or responded to, within a defined timetable.
Landlords and practitioners must also be mindful that where issues around service charge arise, there is also the lease framework to consider, which sets out the contractual obligations, in addition to any statutory one’s.
Specialist legal advice for the landlord is always worthwhile, to avoid any shortfall in recovery (the service charge regime ought to be cost neutral to it), whilst from a tenants perspective, ensuring that you are getting value for money and the appropriate services are being provided at a fair price, is invaluable to protecting the value of your asset.
