Service charge disputes: Transparency and tactics

Service charge disputes can arise for all different types of properties, including large blocks of residential flats and in respect of commercial properties. Proper advice on your rights and obligations can provide the groundwork in establishing the relevant issues and, if possible, facilitating a settlement between the parties.

Below are tips on what to look out for if you believe there is or could be a service charge dispute.

Residential Property

The starting point in any service charge dispute is the lease – this will set out what the services are, what each property’s apportionment is and the account process each year. The first question is: is this a lawful service under the lease?

In addition to the lease, service charges regarding residential property are heavily regulated under the Landlord and Tenant Act 1985. Failure to comply with the legislation can often lead to landlords being unable to lawfully recover some or all of the service charges incurred.

The service charges which are demanded must be reasonable in amount and in the standard of any works and there is recourse through the Property Tribunal to determine reasonableness. The demand needs to be made within 18 months of the landlord incurring the charge. The demand should include important information such as the landlord’s name and address and a summary of the tenant’s rights and obligations.

Tenants can demand information about the services incurred and if the parties are acting sensibly this often resolves the dispute. Transparency about where and how money is being spent is usually the root cause of disputes.

For any major works or qualifying long-term contracts, there is a strict consultation procedure to follow. Failure to comply with the procedure could significantly limit the amount of service charge recoverable. Advice on whether the consultation procedure applies should be obtained before major works are carried out.

Commercial Property

Commercial property is less regulated than residential property as the Landlord and Tenant Act 1985 does not apply. This means there is not a statutory requirement for reasonableness and the landlord does not have to comply with the various requirements when issuing a service charge demand.

Instead, the wording of the lease becomes ever more important. When entering into a new lease, landlords and tenants should carefully consider the wording regarding the services – these should be tailored to the actual needs of the building.

The wording of the service charge apportionments should also be considered, particularly if the property is part of a larger development with new properties to be let in the future. The landlord will often reserve the right to vary the apportionments as the landscape of the building/estate changes.

Disputes regarding commercial service charges often factor around disrepair, more specifically who is responsible for carrying out repairs. If the definition of the demised premises is not clear, some repairs may be the responsibility of both the landlord and the tenant. Similarly, disputes can arise in relation to the maintenance of plant or services (i.e. air conditioning, water, gas, electricity etc.). Tenants will often argue the maintenance of services fall within the landlord’s obligations whereas landlord will often argue any services exclusively serving the property are the tenant’s responsibility.

The interpretation of lease clauses can often lead to disputes and there is much case law on service charge disputes. If you are negotiating the terms of a new lease, you should ensure the wording is clear, unambiguous and tailored to the actual building – generic or precedent wording may not be suitable for complicated building structures.

For existing leases, the interpretation of the lease will be key. For older leases, the wording may not be as detailed as modern leases nor will they have considered any newer regulations (i.e. fire safety or MEEs). In order to determine responsibility for works, there is often a mix of both legal and surveying advice necessary. Whilst there is established case law on contractual interpretation, each case will be assessed on its own facts.

How Greenwoods can help

If you are involved in a service charge dispute or would like advice on your position, the Property Litigation team at Greenwoods can help. We frequently advise on service charge disputes and act for clients pursuing/defending claims both in the County Court and the Property Tribunal.