Why Checking Your Lease is important
The starting place for resolving any service charge dispute is your lease. Your lease tells you:
- What you can be charged for
- How your service charge bill should be calculated
- When and in what format your service charge bill must be sent
- Who provides the services where you live and who is entitled to charge for them
If your landlord, or their managing agent, does not follow what it states in your lease then you may have valid legal reasons for disputing your service charge.
A lease will state what you can be charged for
Your lease should set out exactly what a landlord can charge you for. This is important because normally a leaseholder cannot be charged for something unless the lease says so. Lawyers describe this as being the ‘Authority to Charge’.
The types of things for which a charge can be made will described in two ways: in terms of the parts of a building or areas of an estate; and also in terms of the types of works and services.
Both points, about the types of work which are chargeable to a leaseholder and the areas towards which a Leaseholder is expected to contribute, can be very significant. For instance, many leases say that landlords or management companies are responsible for things like cleaning or repairs but leave out any reference to works of ‘improvement’. In the absence of a specific reference to the word ‘improvement’ a landlord may not be entitled to charge leaseholders for adding something new to a building or estate, such as a gym or a swimming pool.
A lease will state how individual Service Charge bills should be calculated
There is no one standard way of calculating Service Charge bills, and the law is largely silent on this issue. The way in which a Service Charge bill should be calculated will generally be determined by the wording of the lease. For instance, a lease will generally set out the method by which the costs of maintaining a building should be divided between the leaseholders in a building. A lease may also set out other important things such as restrictions on how much may be charged as a management fee and even how much a Service Charge may increase year on year. Landlords will in most cases be obliged to follow the terms of the lease in calculating Service Charge bills, and a failure to do so may mean that a Leaseholder has valid legal reasons for disputing their Service Charge bill.
For more information on how Service Charge Charges should be calculated see our article entitled Apportionment of Service Charges.
A lease will state when, and in what format, a Service Charge bill should be sent
At the moment the law has very little to say about the format and timing of Service Charge invoices other than that landlords must follow what it says in individual leases. Not all leases says the same thing and what they require a landlord or management company to do can vary in many ways, such as:
- Whether bills should be certified by an accountant
- How frequently estimates and actualised Service Charge bills should be sent out
- At what time of year a Service Charge bill should be sent out
If landlords do not follow what it says in the lease then a Tribunal or Court may decide that a Service Charge bill is invalid.
A lease will state who provides the services and who can charge for them
Your lease should explain who provides services where you live, and who is entitled to charge you. This is not always the freeholder of the building, it can be a ‘third party’ such as a management company or a ‘head lessee’.
In terms of the way services are provided, and who is entitled to charge you for them, there are five main types of arrangements which commonly apply in England and Wales:
1. The freeholder is responsible for providing services and maintaining the building, and they are entitled to collect the Service Charge directly from the Leaseholders who use the building, even if they hire a managing agent to do these tasks for them.
2. A management company, which is not the freeholder, is responsible for providing services and maintaining the building and is entitled to collect the Service Charge from leaseholders.
3. The freeholder is responsible for providing services and maintaining the building, however, a Head Lessee is entitled to collect the Service Charge from leaseholders. For an explanation of the term Head Lessee see our article Terms Explained: G to L.
4. A management company is responsible for providing services and maintaining the building, however, a Head Lessee is entitled to collect the Service Charge from leaseholders.
5. A head lessee is the landlord. They do not own the freehold of the building and they may not provide any of the services.
In terms of resolving any disputes with Service Charges it is important for leaseholders to identify which of these arrangements applies to their building or estate. Not least because it will allow leaseholders to identify whom they should take legal action against if there is a breach of the law or their lease: a dispute over Service Charge needs to made with the person or organisation who entitled to collect it.