Leases: Understanding Service Charge Provisions

Service charges remain a major area for dispute between?landlords and leaseholders, often because they involve large sums of money. Frequently, disagreements are attributable to failure to understand the terms of the lease.

The following outlines the proper approach in understanding service charge provisions:

1.???????Bear in mind that leases are expressed in different terms and set in different circumstances. A service charge clause must, therefore, be understood in the context of the lease in which it is contained.

2.???????Service charge clauses generally link the service charge to the costs incurred by the landlord in performing its responsibilities to provide services set out elsewhere in the lease. Read every linked paragraph or schedule. For example, a service charge clause may provide that the leaseholder is required “to pay to the lessor a maintenance charge being that percentage specified in paragraph 9 of the Particulars of expenses which the lessor shall in relation to the property incur in each Maintenance Year.”

3. ??????If the lease specifies mathematically the portion (as a percentage or fraction) of the service expenditure incurred by the landlord, carry out the calculation of the service charge payable by the leaseholder strictly in accordance with the formula set out in the lease.

4.???????Where the lease provides that the proportion of the leaseholder’s contribution is to be “fair”, “proper” “due” or “reasonable” proportion to be determined by the landlord’s surveyor, beware, the FTT can substitute its own apportionment of the costs payable by the leaseholder.

5.???????If the lease does not make express provision for interim payments, do not demand it.

6.???????As a general rule, where the service charge is payable in relation to ‘repairs’, there can be no recovery of service charge if there is no disrepair.

7.???????Remember, there is no presumption that the landlord will recover 100% of its expenses through the service charges.

8.???????If the lease prescribes a procedure that must be followed in order for service charges to be recovered, follow that procedure because it is the agreed process. For example, the lease may require demands for payment on account of service charge to be accompanied by a written summary of the estimated costs which the landlord expects to incur in that accounting period. That is the procedure to be followed.

9. ??????Where there has been non- compliance with the terms of the lease for many years, without previous complaint or challenge, the leaseholders may be precluded from insisting on strict compliance with the process. ?

10.?????While there is no legal requirement that managing agents and landlords should obtain legal advice, a correct understanding of your leases can reduce future complaints, time wasting and costs in Tribunals.?