The law has now changed so landlords must tell service charge payers about their proposals for major works and long-term contracts. This means that if you are planning to sign a contract that lasts over a year (perhaps for lift maintenance, even cleaning) you must formally consult leaseholders on your proposals and give reasons why.
Until now, it has not been possible to challenge work done to improve the building and charges for administrative functions by the landlord on the grounds of reasonableness.
This has now changed and if your lease includes a liability to contribute to the costs of improvements, costs must be deemed reasonable. At any time, they can be challenged at a Leasehold Valuation Tribunal.
The same will apply to administrative charges which can include fees for consents, legal costs, costs levied for provision of information, documents etc.
The law now requires leaseholders’ service charge monies, including sinking funds, to be held in a separate, designated trust account exclusive to the building.
Leaseholders also now have rights to inspect these bank statements and other financial records to check that money is where it ought to be.
As a matter of course, landlords must now produce a yearly statement of each leaseholder’s service charge account, in the form of a balance sheet. Previously, these only needed to be supplied following a written demand.
This way, leaseholders are kept aware of their payments and how the funds have been spent by the landlord. Leaseholders are now entitled to withhold payment of service charges if the landlord does not comply with this requirement.
In addition, landlords must include a statement of leaseholder’s legal rights with any demands for service charges.
Landlords cannot take proceedings to recover ground rent unless they have previously demanded it, in writing, in the proper format, giving at least 30 days notice.
Leases usually allow the landlord to bring action to repossess a leasehold flat if the leaseholder is in arrears of ground rent or service charges or is otherwise in breach of the lease.
Leaseholders now have more protection as landlords must prove any breach before the Leasehold Valuation Tribunal (among others) before they can serve a forfeiture notice.
All demands for service charges from leaseholders must now be accompanied by a statement describing what the charges include.
The wording of the statement is legally prescribed and leaseholders will have the right to withhold the service charge if this statement is not provided (or not provided correctly).
We use the Royal Institution of Chartered Surveyors standard form of management agreement. For more details, contact Patrick Flynn, Associate Director New Business Development, Douglas & Gordon, 67/68 Warwick Sq, London SW1V 2AR
