Residential service charges can they be challenged

Legislation protects residential tenants from excessive service charges. Before entering into contracts to provide services or carry out works relating to residential properties, freeholders or managing agents need to consult the flat owners. If they don’t they will only be able to recoup the statutory maximum, without dispensation from the Leasehold Valuation Tribunal (LVT).

But before considering what we can do if there is a problem, many clients also ask what is a service charge?

Well a service charge is an amount payable under your long lease in addition to your rent and relates directly or indirectly to services, repairs, maintenance, insurance; or management costs the freeholder or managing agents provides so this can include costs of electricity for a shared corridor in the block or the costs of building insurance for the block. Service charges may vary according to the costs or estimated costs incurred in connection with the matters for which the service charge is payable.

When can you challenge service charge costs

Apartment owners can challenge service charge costs by asking the LVT to determine whether:

• The service charge costs were reasonably incurred
• The services or works are of a good standard
• An estimated service charge, payable before costs are incurred, is reasonable

When must the freeholder or managing agent consult with me?

They must consult with you if either:

• The amount payable by any one tenant for services to be provided under a qualifying long term agreement (QLTA) will exceed £100 in any one year. A QLTA is an agreement entered into by you or a superior landlord, for a term of more than 12 months.
• The cost of work on the building or other premises will exceed £250 for any one tenant. 

What are the consultation requirements?
 
They must:

• Give notice to you and to any recognised tenants’ association (RTA), explaining why the proposed works are necessary. They must invite written observations on the proposals and take note of any responses.
• Obtain estimates. You and the RTA have a right to nominate alternative contractors and the freeholder / managing agent is obliged to ask for an estimate from the nominated alternative contractors.
• Issue a statement setting out the estimated costs from at least two of the estimates with a summary of the written observations they received and their responses to them.

• Provide a notice:
• Setting out when and where all the estimates can be inspected; and
• Invite written observations on the estimates within 30 days of the date of the notice and they must take note of any written observations provided.
• Give reasons for selecting the successful contractor.

The LVT has the power to dispense with the consultation requirements if it is satisfied it is reasonable to do so.
 
What are the penalties for failing to comply with the consultation requirements?

If they do not comply with the consultation requirements, and the LVT does not decide to dispense with the requirements, the ability to pass on costs to you will be limited. The maximum they will be able to recover is:

• £100 for each tenant for each year for QLTAs
• £250 for each tenant for qualifying works

Related resources: Assured shorthold tenancy agreement | Advice on buying property

Source: http://www.ms-law.co.uk/2011/05/27/residential-service-charges-can-they-be-challenged/#utm_source=feed&utm_medium=feed&utm_campaign=feed