Do I have to pay my service charge?

If you have purchased a flat in England and Wales then, as part of that process, you will have signed a lease (if you bought a new build) or signed a deed of covenant transferring the obligations of the lease of the property to you so, ostensibly, yes you do.

That said, the party producing the service charge must comply with several pieces of legislation and, if not adhered to, can create a situation where a service charge does not have to be paid or can be withheld. This article explores some of these options.

Landlord and Tenants Act 1985

Section 18 – Definition of a service charge and relevant costs

Defines what a service charge is and what “relevant costs” are. Leaseholders do not have to pay for items of expenditure that are not permitted by the lease. Improvements to developments often breach this rule.

Section 19 – Reasonableness

Service charges are only payable to the extent that they are reasonable, and works are to a reasonable standard.

Section 20:  Limitation of service charge:

If any leaseholder is required to pay £250 or more for a single project e.g., re-decoration (Reduces to £100 for agreements lasting more than one year), then the party issuing the service charge is required to commence a consultation process with the leaseholders. If the consultation process doesn’t happen, then the leaseholder doesn’t need to contribute any more than the first £250 (or first £100 in the case of multi-year agreements).

Section 20B – The 18 Months Rule:  time limit on making a demand.

If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred (assuming the party issuing service charges has not already informed the tenant via a section 20B notice which advises the tenants of the intent to reclaim these cost through the service charges).

Section 21A: If section 21 (Leaseholders have the right to request a summary of service charge expenditures) is breached, the tenant might withhold the payment of the service charge.

Landlord and tenants act 1987:

Part 5 – Management of leasehold properties.

 Section 42: service charge contributions to be held in trust.

Section 42A: Service charges to be held in designated account.

Leaseholders have the right to assess compliance and can withhold payments if they believe the service charge funds are being held in a non-compliant manner.