How are Service Chargeable Cost divided between the properties in a Building?
The process by which the total cost of the services provided by a landlord (or managing agent) gets shared between the individual dwellings, or commercial units, in a building or estate pays is referred to as ‘apportionment’. In order to carry out the apportionment of the total service charge for the building, service charge practitioners need to select the right ‘apportionment method’. An apportionment method is the formula used to divide the landlord’s cost of managing the building between the residents in that building.
There is no standard apportionment method for all leasehold property. There is an almost limitless variety of apportionment methods currently in use in England and Wales. The common feature of all these methods is that they pick a particular aspect of an individual dwellings to use as a point of comparison with the other individual dwellings in a building or estate. The most commonly used apportionment methods are:
- Floor space – This apportionment method involves charging the leaseholder by comparing the floor area of an individual dwelling with the combined floor area of all the individual dwellings within the building. For example, if the floor space of all the flats in a building comes to 1,000 sqm, then somebody with a 50 sqm flat should pay 5% of the total costs for the building.
- Bed space – This apportionment method involves charging the leaseholder by comparing the number of ‘bed spaces’ in an individual dwelling with the total number of bed spaces in all the individual dwellings within the building. For example, if the total number of bed spaces in all the flats in a block comes to 40, then somebody with a 2 bed space flat should pay 5% of the total costs for the building.
- Rateable value – This apportionment method uses the now defunct local authority rates system that was once used to calculate what is now termed ‘Council Tax’. It involves charging the leaseholder by comparing the ‘rateable value’ of an individual dwelling with the combined rateable value of all the individual dwellings within the building. For example, if the rateable value of all the flats in a building comes to 5,000, then somebody with a flat which has a rateable value of 250 should pay 5% of the total costs for the building.
- Equal apportionment – The other methods listed above aim to ensure that the larger the individual dwelling the higher the percentage of the total service charge that must be paid. This apportionment method involves simply counting up the number of liable properties and dividing the cost equally between them.
Which Apportionment Method should a Landlord be using?
A leaseholder can check whether the people calculating their bills are using the right apportionment method by checking their lease. Some leases simply state a fixed percentage of the total costs for the building and/or estate which that is attributed to an individual flat. If a percentage is stated in a lease, then this is what a landlord is obliged to use. Other leases may state simply the apportionment method and no other figures. If this case, the landlord is legally obliged to accurately calculate the service charge apportionment using the apportionment method stated in the lease. More confusing still, some leases state no way of sharing the costs between properties. In these types of cases, the normal practice is simply to apportion the costs equally between all the properties. Please note that whether this is legally correct or not may vary from case to case.
Checking whether your Landlord has correctly Apportioned Service Charge costs
Once a leaseholder has established the apportionment method which should be they can make their own calculations to check that this method has been applied correctly. In order to make this check a leaseholder may need to ask their landlord to provide them with information; for instance, if floor space is being used a leaseholder needs to know the floor area of all the other flats in the building. A landlord should have this information and if they do not, or they are unwilling to share it with their leaseholders, that is a valid cause for concern.
What to do if I am concerned about the way Service Charge costs have been Apportioned
If a leaseholder’s calculations are different to those of the landlord, the first thing they should do is to write to their landlord and explain the problem, and more importantly exactly how they came to a different figure. From our experience, these types of issues are very easily resolved in most cases with landlords making adjustments to accounts when they are in error. It’s generally an easy mistake to rectify.
If the Landlord (or managing agent) does not make an adjustment to the account, leaseholders can complain and if they remain dissatisfied then they can make an Application to a First Tier Tribunal. For more information about disputing a Service Charge you may find it useful to read our article entitled How to Dispute a Service Charge.
What if I don’t agree with the Apportionment Method stated in my lease?
If the landlord’s calculations are correct, but a leaseholder still feels that they pay more than their fair share, there is a possibility that they might be able to apply to a First Tier Tribunal for a lease variation. A lease variation is a process by which a Tribunal formally changes the terms of a lease, and this can include the apportionment method. If you would like more information about applying to vary a lease see our guide to Section 35 of the Landlord and Tenant 1987.