In my first article in the second addition of Property Focus, I stated that the service charge is the payment made by a leaseholder to the freeholder of their managing agent to maintain, repair and insure the building as well as to provide other services to be provided under the terms of the lease such as lift maintenance, central heating, cleaning and gardening. In article I touched on leaseholders “right to manage” removing the freeholder’s control of the maintenance of the building under the terms of the lease.
The “reasonableness” of the service charge is arguably the most contentious issue with respect to living in a leasehold property and why so many leaseholders wish to have control either by owning a share in the freehold or acquiring the right to manage. Under the Leasehold & Commonhold Reform Act 2002 leaseholders have a right to withhold payment of their service charge if they dispute the service charge, the charges have to be reasonable and the lessees fully consulted in accordance with the regulations set out in the Act.
One clear calendar month before the commencement of the financial year a leaseholder should receive a draft budget of service charges for the forthcoming year and given the right to comment on the proposed budget. Any comments received must be considered and before implementing the budget any representations received, considered and have regard to.
Failure to do so could invalidate the right to recover the service charge, further the request for payment must be in a prescribed format with notes accompanying advising leaseholders of their rights. Failure to advise a leaseholder of their rights will invalidate any request for payment.
The service charge should be transparent with individual items of proposed expenditure clearly items of proposed expenditure clearly quantified. A standard budget will include items such as fire risk assessments, health and safety inspections, emergency lighting and fire alarm testing. The list is ever increasing with new regulations being introduced and additional services provided to some properties.
It would not be unreasonable for lessees to question any item of expenditure within a budget and to seek competitive estimate to ensure value for money. I will touch on the large ticket items in subsequent issues but needless to say insurance and managing agent’s fees are usually the two largest items of expenditure for which leaseholders need to be satisfied they are receiving value for money.
Ultimately, a leaseholder can withhold payment of their service charge and leave it for the freeholder/RTM to take them to the Leasehold Valuation Tribunal where the question as to the reasonableness of the service charges will be considered and determined by an independent review panel. Hopefully this can be avoided if managing agents and their client respect leaseholder’s rights by providing clear transparent information and most importantly a service to justify the service charge.
If you have any questions with respect to service charge issues or any other matter in respect of leasehold management please do not hesitate to contact me and I will endeavour to provide impartial professional advice.
Peter Dack FRICS
Director
