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Section 21 (Service Charge Information)

Summary

1. Section 21 of the Landlord and Tenant Act 1985 is the subject of continuing confusion for leaseholders, landlord and industry professionals.

2. The reason for this confusion is that there are multiple versions of Section 21, 7 to date, and it is not certain which of these currently apply.

3. The three leading contenders are the versions are last updated by the following three Acts of Parliament:

Version 1: The wording of Section 21 of the Landlord and Tenant Act 1985 as last amended by Schedule 1 of the Housing Grants, Construction and Regeneration Act 1996

Version 2: The wording proposed by Section 152 of the Commonhold and Leasehold Reform Act 2002

Version 3: The wording proposed in Schedule 12 of the Housing and Regeneration Act 2008

4. Rather than make a definitive, and perhaps incorrect, statement as to which one currently applies, below we outline all three versions and the debate over this section of the Landlord and Tenant Act 1985. We leave it open for our readers can take their own view.

The Debate

1. Section 152 of the Commonhold and Leasehold Reform Act 2002 proposed new wording be substituted for the wording given in the previous version of Section 21.

2. Section 152 was never brought into force. Version 2 stated below therefore is not law.

3. The point of confusion is that a third version (Version 3) was proposed by Schedule 12 of the Housing and Regeneration Act.

4. The debate is whether this third version now applies, or whether the previous version (Version 1) is still in force.

5. Section 12 of the Housing and Regeneration Act 2008 came in force on the 28th November 2008 with the making of the Housing and Regeneration Act 2008 (Commencement No. 2 and Transitional, Saving and Transitory Provisions) Order 2008. There is no difference of opinion on this, however, the effect of Schedule 12 is open to interpretation.

6. In Schedule 12 of the Housing and Regeneration Act 2008 Version 3 is prefaced at article 2. with the statement that:

For section 21 (as substituted by section 152 of the Commonhold and Leasehold Reform Act 2002 (c. 15)) (regular statements of account) substitute—

7. This wording could be interpreted in two ways:

i. That the wording given in Schedule 12 is intended to replace the wording of Section 21 of the Landlord and Tenant Act 1985.

ii. That the wording is intended to replace the proposed wording in section 152 of the Commonhold and Leasehold Reform Act 2002, which never having been brought into force, means that the previous wording (Version 1) of Section 21 of the Landlord and Tenant Act 1985 remains unchanged.

8. The team at legislation.gov.uk (part of the Government funded National Archives) appear to have opted for interpretation i. with the online version of the Landlord and Tenant Act 1985 quoting the wording given in Schedule 12 of the Housing and Regeneration Act 1985 as being the version of Section 21 which is currently in force.

9. By way of contrast respected barristers Francis Davey and Justin Bates, at page 85 of their book  Leasehold Disputes (3rd Edition), suggest that the correct way to understand the effect of Schedule 12 is interpretation ii. and that the previous wording of Section 21 (Version 1) still applies.

10. Whilst there appears to be a good case for adopting interpretation ii. there is no definitive case law upon which to rely for guidance on the matter leaving the matter open for the courts and tribunals to make their own decision.

Version 1: The wording of Section 21 as amended by Schedule 1 of the Housing Grants, Construction and Regeneration Act 1996

1. This version of the wording of Section 21 gives leaseholders, and recognised tenants’ association, the write to request that their landlord provides a summary of the costs incurred for the last service charge account period of 12 months, or if the service charge accounts are not prepared in 12 month periods, a 12 month period ending on the date upon which the request is made.

2. Following service of  written request under Section 21 the landlord, or a person who receives the service charge payments on behalf of the landlord, the summary must be provided either within 1 month of the request, or 6 months of the end of the 12 month period which is the subject of the request, whichever occurs later.

3. The summary must include:

i. A statement as to whether any of the costs relate to grants given under Section 523 of the Housing Act 1985 or Part 1 of the Housing Grants, Construction and Regeneration Act 1996.

ii. Any costs incurred during the 12 month period for which no demand has been made.

iii. Any costs demanded during the 12 month period for which the landlord has made no payment.

iv. Any costs demanded during the 2 month period for which the landlord has made a payment.

v. The total amount of on account payments from all the relevant leaseholders and any credit of those of those payments held at the end of the 12 month period.

4. If more than 4 leaseholders are liable to pay the relevant costs, a qualified account is required to certify that:

i. The summary represents a fair representation of the required information.

ii. That the summary is sufficiently supported by the accounts, receipts and other documents presented to the accountant.

5. For an explanation of who counts as a ‘qualified accountant’ see Section 28 of the Landlord and Tenant Act 1985.

Version 2: Section 152 of the Commonhold and Leasehold Reform Act 2002

1Section 152 stated that the original wording of Section 21 of the Landlord and Tenant Act 1985 would be replaced with some specific rules about providing regular Service Charge statements. These rules, which were never brought into force, were:

i. Landlord must produce regular statements of account for each service charge charge accounting period detailing:

a) The service charges of all the tenants in the relevant building

b) Relevant costs relating to those tenants

c) The total credit standing to the accounts of the tenants at the start and end of the service

ii. The statement must be provided no later than 6 months from the end of the relevant service charge accounting period

iii. The statement must be accompanied by:

a) A statement from a qualified accountant confirming that the statement of account deals fairly with the matters with which it is required to deal and is sufficiently supported by accounts, receipts and other documents which have been produced to him

b) A summary of the tenant’s rights and obligations

Version 3: Schedule 12 of Housing and Regeneration Act 2008

1. The Housing and Regeneration Act 2008 version of Section 21 states that the Government can make regulations requiring landlords to:

i. Produce finalised service charge statements within a certain period of time.

ii. Provide leaseholders with specific information as part of the billing process.

iii. To have accounts reviewed, certified or audited by a relevantly qualified person and to decide on who can counts as a relevantly qualified person.

iv. Adopt a prescribed format for service charge demands.

2. To date no such regulations have ever been made.

Click on the link to read more about the Landlord and Tenant Act 1985