Service charges. How to avoid the most common mistakes

The Landlord and Tenant Act 1985 sets out the basic ground rules for service charges, defining what is considered a service charge, setting out requirements for reasonableness and for prior consultation of leaseholders. The three most common mistakes we have encountered with self-managed sites are as follows:

Not including a copy of “Service Charges – Summary of tenants’ rights and obligations”

The provisions of the Commonhold and Leasehold Reform Act 2002, in Section 153, require that a demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges. A tenant may withhold payment of a service charge which has been demanded from him if (the requirement to provide the summary) is not complied with in relation to the demand.” “Where a tenant withholds a service charge under this section, any provisions of the lease in relation to non-payment or late payment of service charges do not have effect to the period for which he withholds it. If you are sending out service charges, a copy of the Summary of tenants’ rights and obligations must be included. Please note that this document is legally compliant at the time of upload to this website – 1^st February 2016

Charging for items that are not covered by the lease

The general principle of a lease is that the landlord is not obliged to provide any service which is not covered by the lease, and the leaseholder is not responsible for payment where there is no specific obligation set out in the lease.

Not including the Landlords Service address

Demands for service charges payable to the landlord must be in writing and must contain the landlord’s name and address. Failure to provide the landlord’s name and address on the demand means the service charge is not payable until this information is given. If the landlord’s address is outside England or Wales, the demand must contain an address in England or Wales at which notices may be served by the leaseholder. This does NOT apply if the service charge is payable to a management company, rather than payable directly to the landlord. The demands must still be writing, but they do not need to contain the landlord’s name and address. HOWEVER, many self-managed sites have a legal structure where the resident management company IS the Landlord.