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My local authority landlord is billing major works in a different way to the annual service charge. Is this legal?

Reader’s E-mail:

I am a leaseholder of a 1 bed ex local authority flat which has recently undergone major works to include new windows, roof and overcladding costing £29,000.00 I have been charged the same as a 2 bed flat which is unfair as I have fewer windows and no balcony. Could you tell me if the charge for Major Works comes under the same category as annual Service Charge and if you know of any cases where judgement has been reached.

Reply from Service Charge Dispute Guide

1. Local authorities typically opt to divide their service charges into two types: an annual service charge, and major works. They do so for a number of reasons, the principle of which is to allow leaseholders to pay their service charges on different terms.

2. Major works occur infrequently and often led to very large liabilities such as the one which you are now faced with. In order to assist leaseholders local authorities tend to invoice them separately from the recurring costs, such as cleaning or grounds maintenance, which are invoiced periodically (normally annually) as the ‘annual service charge’. The separation of the two types of service charge costs make it easier from an administrative perspective for local authorities to provide leaseholders with payment plans allowing them to spread the cost of major works over several years or take out loans from their local authority landlord on special terms to assist them in meeting these enormous bills.

3. Good intentions aside, this practice of separating out the billing of two types of service charge has been the subject of a large number of legal cases. A good one to refer to is the Upper Tribunal of the Lands Chamber case of Southwark LBC v Woelke [2013] UKUT 349 (LC).

4. The issue in these cases, such as Southwark LBC v Woelke, is whether the wording an individual’s lease allows the local authority in question to use this dual billing process.

5. Typically local authority leases are worded in such a manner as to mean that there is only a single service charge as opposed to two separate service charges. The same billing rules normally apply to costs which are incurred routinely, like cleaning and grounds maintenance, as they do in respect of the cost of infrequently incurred costs like those for replacing windows.

6. You need to read your check in order to get a definitive answer on this point, but for the great majority of local authority leaseholders the way costs are divided up between residents in building (known as the ‘apportionment’ method) for the ‘annual service charge’ will be identical to the way the costs for ‘major works’ should be apportioned between the same residents.

7. The second query you have raised with us is whether as the leaseholder of a one bed flat you should be paying the same as the leaseholder of a two bed flat.

8. Again the starting point in answering this question is the wording of your lease.

9. There is no one standard lease type in England and Wales. They come in a wide variety of types. In respect of apportionment methods it is, however, helpful to divide the wide range of different lease types into two groups:

i. Ones which state a definitive method for sharing costs. They might state a percentage of the total cost for a block (this means building or part of a building as defined in the lease), or an estate, towards which a leaseholder must contribute. Alternatively, they might also state a method for determining this percentage such as a comparison of the number of bedrooms, the floor space, rateable value or the such like, whereby the share an individual might pay is calculated by comparing the relevant feature of an individual dwelling to the total of all the dwellings in the block or estate. For more information about this see our fact sheet on Apportionment Methods.

ii. Leases which state something more vague, such as saying that the apportionment method must be ‘fair’ or ‘reasonable’. Typically leases of this kind state that the landlord is entitled to determine what counts as ‘fair’ or ‘reasonable’.

10. If your lease falls under Type i. above (and it states a definitive method for apportioning service charge costs) then the method which is outlined in your lease must be followed, and neither you nor your landlord is legally entitled to deviate from what the lease says whether that appears fair or not. For case law on this point lawyers usually refer to the case of Schilling v Canary Riverside Development Ltd LRX/26/2005.

11. If your lease falls under Type ii. above the situation is more complicated. Following the decision in the case of Windermere Marina Village v Wild [2014] UKUT 163 (LC) leaseholders have the right to challenge, by application to a First Tier Tribunal, a landlord’s decision at to what constitutes a fair or reasonable apportionment.

12. The question of how the law decides whether a particular apportionment method is in fact fair or reasonable is itself complicated and if this is relevant to you in your case please write to us again with more detail and we will provide you with more information. For our readers interested in this issue two key cases to refer to are Re Rowner Estates Ltd LRX/3/2006 and Shersby v Greenhurst Park Management Ltd [2009] UKUT 0241 (LC).

13. As a final point you might wish to enquire with your landlord whether they are in compliance with The Social Landlords Mandatory Reduction of Service Charges (England) Directions 2014.

14. These regulations state that the amount rechargeable to leaseholders is subject to a cap (£15,000 in London and £10,000 elsewhere) over a 5 year period if the cost of repair, maintenance or improvements is funded by a grant from the Secretary of State or Homes and Communities Agency which was applied for after the 12th August 2014.

15. If the works for which you have been billed are already completed then any relevant grant may have been applied for before the cut off date in 2014 and therefore the cap does not apply, however and nonetheless, it may be worth just double checking this point with your landlord for the sake of setting your mind at rest on in respect of these Regulations. Any local authority billing large major works should have already considered the impact of these regulations and therefore will be able to provide you with an instant answer in this respect.

Click on the link to read more Reader’s Questions and Answers on Billing and Refunds

Click on the link to read more Reader’s Questions and Answers on Major Works