Service charge and management disputes

A service charge demand is not conclusive. Four questions determine what is actually payable, and a landlord has to be able to answer all four.

The four questions

Is it recoverable under the lease at all? The starting point, and the one most often decisive. A service charge can only recover what the lease permits. If the lease does not allow recovery of a particular category of cost — major works of improvement rather than repair, a management fee structured in a particular way, a reserve fund — then it is not payable, however reasonable the expenditure was.

Was it reasonably incurred? Costs must be reasonably incurred to be recoverable. That is not a requirement to find the cheapest option, but it does require a rational process — tenders obtained, alternatives considered, decisions explicable.

Was the work to a reasonable standard? Where it was not, the charge can be reduced.

Was consultation carried out? Where the statutory consultation requirements apply and have not been followed, recovery is capped at a low statutory figure per leaseholder unless dispensation is granted. This is the most powerful remedy available to leaseholders and the most common landlord failure.

Consultation — where landlords go wrong

Statutory consultation applies to qualifying works above a threshold per leaseholder and to qualifying long-term agreements. The process has prescribed stages, prescribed notices and prescribed periods.

Failures are common: a stage skipped, a notice that does not contain what it must, observations not taken into account, or the process started after the works were already committed.

The consequence is significant. Without consultation or dispensation, the landlord recovers only the statutory capped amount per leaseholder — which on a substantial works programme is a very large shortfall.

Landlords can apply for dispensation, and tribunals frequently grant it where leaseholders have suffered no real prejudice. But dispensation is not automatic, it costs time and money, and it can come with conditions.

Other management disputes

Accounts and information. Leaseholders have rights to information about how charges are calculated and to inspect supporting documents. A landlord who does not provide it is in a weak position when the charge is challenged.

Reserve and sinking funds. Whether they are permitted by the lease, how they are held, and whether the level is reasonable.

Managing agents. Standards, fees, and whether their costs are recoverable.

Right to manage and appointment of a manager. Where leaseholders wish to take over management, or to have a manager appointed because of failures in the current one.

Insurance. Frequently the largest single item, and frequently arguable — whether the cover is what the lease requires, whether commission arrangements have inflated it, and whether the premium is reasonable.

For freeholders and managing agents

The same material from the other side. Getting consultation right is the single highest-return thing a freeholder can do, because the downside of getting it wrong is a shortfall that cannot be recovered afterwards.

We advise on structuring major works programmes so that consultation is done properly first time, on responding to challenges, and on dispensation applications where something has gone wrong.

What we do

Review the lease to establish what is recoverable — which answers most disputes. Check whether consultation was required and carried out. Request and analyse the accounts and supporting documents. Advise on prospects before proceedings. And represent at tribunal.

What it costs

£400 per hour plus VAT with an estimate by stage.

A review of the lease and the demand — what is recoverable, whether consultation applied, and what is realistically challengeable — is a fixed fee, and on a substantial demand it is the right first step.

Note that costs rules in the First-tier Tribunal differ from the civil courts, and we will explain the position for your matter before anything is issued.

Questions

Questions people ask us

My service charge has doubled. Can I challenge it?

Possibly. The questions are whether the cost is recoverable under the lease, whether it was reasonably incurred, whether the work was to a reasonable standard, and whether consultation was required and carried out. A large increase is not itself unlawful, but it is a reason to ask.

They did major works without consulting us. What happens?

Where statutory consultation applied and was not followed, recovery is capped at a low statutory figure per leaseholder unless the tribunal grants dispensation. That is frequently the most valuable point available to leaseholders.

Can I see the invoices?

Generally yes. Leaseholders have rights to information about the calculation of charges and to inspect supporting documents. A refusal is itself significant.

Is the insurance premium challengeable?

Frequently. Whether the cover matches what the lease requires, and whether commission arrangements have inflated the premium, are both legitimate questions. It is often the largest single item.

Can we take over the management?

There are routes — right to manage, and applying for the appointment of a manager where there have been management failures. Which fits depends on the building and what has gone wrong.

I am a freeholder facing a challenge. What is the priority?

Establish whether consultation was required and properly carried out. If it was not, deal with dispensation early rather than defending the whole charge on reasonableness.

The hub

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Also in this area

Lease renewal and the Landlord and Tenant Act 1954 →

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