Explaining Service Charges

Service charges are the cause of the majority of disputes between leaseholders and freeholders. Freeholders levy the charge to recover the cost of servicing the leasehold property but some unscrupulous freeholders will charge huge sums for unwarranted major works leading to disputes.

In short term tenancies, service charges are usually included in the rent but leaseholders usually pay larger amounts separately. A tenant’s landlord and a leaseholder’s freeholder both have legal duties to ensure that their properties are maintained but they recover their cost in different ways.

From a freeholder’s point of view, the service charge is fair because it makes improvements to the property which in turn improve it’s value and that if the leaseholder owned a freehold house for example they would incur the costs anyway. However, a leaseholder might respond by saying that if they owned a house they would be free to choose what they repaired therefore saving money.

What makes up my service charge?

The service charge will usually consist of:

1. Direct costs: these can either be routine costs which require regular payment such as electricity bills or insurance premiums, or exceptional costs which are rarely required including major repairs (these can be very expensive)

2. The management fee: this covers the administration work carried out be the freeholder and usually doesn’t vary greatly from one year to the next unless particular big work involving different contractors has been done

Leaseholders are only compelled to pay the service charge if the charges are reasonable and directly match up to services or maintenance which the freeholder has a legal duty to provide as stated in the Landlord and Tenant Act.

The cost of any work costing more than £250 can only be reclaimed if an agreement has already been reached with leaseholders, the works is needed urgently or the following criteria are met:

• Two or mote estimates from different companies (in which the freeholder has not got a vested interest) are obtained for the work

• The quotes are then displayed for all leaseholders to see or distributed to them

• Leaseholders are sent a notice detailing the work which will be done and encouraging feedback from leaseholders within 4 weeks

• Proper consideration must be given to leaseholder objections are responded to explaining reasons for pressing forward

In many cases, freeholders do not meet these criteria and should they fail to do so, leaseholders would be within their rights to refuse to pay the service charge in line with section 20 of the Landlord and Tenant Act.

Late service charges

Leaseholders are also protected when it comes to late charges. Should the freeholder fail to ask for payment within 18 months of the work being done, the leaseholder will not technically need to pay. Freeholders do have the right to charge the leaseholder within this time and only bill them afterwards though.

Furthermore, leaseholders can apply to the Leasehold Valuation Tribunal to ask for a different insurer to be chosen if they are dissatisfied with the insurer nominated by the freeholder.

Get in touch with our leasehold property experts today for service charge advice

Looking for advice over service charges or service charge arrears? Whether you are a leaseholder or freeholder, our specialist property dispute team have the experience and expertise needed to help you.

  • Call 0800 1404544 today, or
  • Fill out the contact form below to get in touch.

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