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What is a service charge?
A service charge is a sum that is paid in relation to maintenance, services and repairs. They are typically found in a lease, where it is agreed that a tenant will pay a landlord (or management company) a service charge to cover the service costs that are supplied.
There will be a provision in the lease defining what services will be provided. This provision will often set out the mechanics of how the service charge is calculated and paid.
Residential service charge provisions are governed by extensive legislation as well as the provisions of the lease. For commercial properties, there is no statutory intervention, and the service charge obligations are governed by the terms of the lease.
Service charges can be fixed or variable in amount. When a dispute arises regarding a service charge, it is vital you seek legal advice from Property Litigation experts.
How do service charge disputes arise?
For residential service charges, service charge demands must be lawfully served by providing specific information and complying with both the law and the lease. Disputes may arise over whether a service charge demand is valid.
For example, landlords must give tenants a name and address for the landlord and, if this is outside of England and Wales, an address within this region that the tenant can serve notice to.
If this information is omitted from the payment demand, the sum does not have to be paid until it has been given.
However, tenants should not hold back on paying a service charge, even if they disagree with it, without seeking legal advice.
Further, landlords must provide a notice of the tenant’s rights in statutory form. Again, the fee does not have to be paid until a demand with this notice has been provided.
The landlord’s demand ought to also satisfy the requirements laid out by the Landlord and Tenant Act 1985 and those of the lease, which would often incorporate the terms contained within section 196 of the Law of Property Act 1925.
Nonetheless, service charge demands can still be valid if they do not contain absolute clarity or include minor errors, providing that the tenant does not suffer any prejudice due to the errors.
Disputes may also arise over the costs of service charges. For example, the tenant may deem the sum as unreasonable or disproportionate. Also, tenants may believe that the landlord is demanding fees for services that are not referred to in the lease or that the works carried out need to be revised.
The charges ought to mirror the reasonable costs borne by the landlord, which are necessary, appropriate and directly in relation to the supplied services. Demands that incorporate unreasonable or excessive costs can be deemed invalid.
Service charge disputes for tenants
In the event of a disputed service charge, tenants may write to their landlord explaining why they disagree with the charge. If this does not lead to a satisfactory outcome for the tenant, they may issue a formal complaint to the landlord.
If the tenant remains unhappy, they may apply to the tribunal to determine liability to pay and the reasonableness of service charges.
Given the potentially disproportionate nature of disputing a service charge as an individual tenant, it is sometimes worth considering whether resolving service charge disputes through a communal approach would be better. This would involve a group of tenants splitting the legal costs amongst themselves, thereby reducing the fees for individual tenants.
As noted above, tenants should not hold back on paying a service charge, even if they disagree with it, without first obtaining legal advice.
There has been recent case law in the context of commercial service charges where the Court found that commercial tenants were obliged to pay service charge debts, but that the door is left open for tenants to then dispute liability and seek repayment of any costs which they consider improperly charged by their landlord.
Service charge disputes for landlords
We understand that disputed and potentially unpaid service charges can disturb the operation of your business, divert time and attention away from your other commercial pursuits, and threaten the relationship that you have already built and maintained with your tenant. That is why we look to resolve disputed service charges swiftly and efficiently.
If a tenant disagrees with a service charge that you have demanded, we suggest that you check the terms of the lease. It will be your responsibility to prove that the charge was reasonable, so it may be worth having a transparent and catalogued procedure in order to organise the work in question and quantify the service charge.
It could also help if you are able to show that the service charge in dispute is of a similar price to comparable charges in the market. Before acting, we would suggest seeking out legal advice.
Seeking advice
Service charge disputes can occur for a variety of reasons. Though they are not a rare occurrence, if you disagree about your service charge, you should seek legal advice immediately to ascertain your options.
Our service charge dispute solicitors have experience handling various service charge disputes.
We can advise on the best dispute resolution method, such as negotiation or, if necessary, tribunal proceedings.
Our Property Litigation Lawyers assess each matter on its facts and will outline all the options and advise you on the best course of action to effectively resolve your unique service charge dispute.