Following recent legislative case studies featured in property news, landlords need to be clear on what they can charge tenants through a service charge and what is classified as an improvement and means they have to pay the costs themselves.
The financial impact on landlords of making the wrong decision about whether property improvements can be included in service charges to tenants can potentially be very high.
Landlords must ensure that only appropriate costs are included and take heed of recent legislative case studies which have increased the administrative burden on landlords to help with property dispute resolution.
Costs that can be included in a service charge must be “reasonably incurred”. Typical costs that can be included are repairs and maintenance and buildings insurance but not improvements.
Landlords need to be careful how they use the word “reasonable” in relation to service charges in leases as courts have criticised how these can be used in a vague manner and upheld tenant legal challenges unless costs are more specifically defined.
Under Section 19 of the Landlord & Tenants Act 1985, tenants have the right to challenge whether service charges are “reasonable”.
In Waaler -vs- Hounslow LBC, in 2015, a tenant disputed having to pay for replacement windows in a block of flats as part of the service charge as the hinges were not strong enough to take the weight of the glass in the tilting windows which meant they kept breaking.
The Tribunal initially said the tenant should pay but the Upper Tribunal reversed the decision and found the landlord liable because the changes were deemed an improvement not a repair. A landlord has an obligation to repair but improvements are usually a matter of choice.
The Tribunal decided that when a landlord argues that a service charge relating to improvements rather than repairs is “reasonable”, two points must be proved; that the landlord has considered both whether there is an alternative, cheaper option and taken into account the opinion and financial situation of the tenants who pay for the improvements.
Deciding whether work is repairs or improvements is a vital distinction that indicates whether a tenant should be liable or whether the landlord should cover the costs separately.
Other potential problem areas for landlords in relation to service charges that have been covered in property news include issuing leases and notifications of service charges incorrectly and failing to serve demands within the statutory time limit.
Section 20b of the Landlord and Tenant Act 1985 puts a time limit of 18 months from when the service charge expense was incurred to collecting payment or informing a tenant they are liable for a charge.
Landlords need to be aware of the terms of the lease and how the law may interpret the wording in the lease and to have knowledge of the statutory provisions that apply to residential service charges and developments in the law in this area.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.