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Service charges: An important lesson for landlords

With the complex statutory overlay that governs service charges in respect of residential properties, it can be easy to overlook a fundamental point: are the costs of the services provided recoverable under the terms of the lease? If not, the tenant will not be contractually liable for expenditure by the landlord.

This salutary lesson was learnt by the landlord in LVT case LON/00AH/LSC/2012/0344. Here the tenants successfully challenged whether the invoice for major works was payable under s27A of the LTA 1985 on the basis that the lease provided for an interim payment on account to be made in each year but did not make for provision for a balancing charge.

The Tribunal agreed that the leases were defective and, as such, the costs of the major works were not contractually due from the tenants as they had already received (and paid) an interim demand for the relevant year. Had the landlord wished to recover the cost of the major works, it should have included the anticipated costs (which were known at the time) in the interim demand.

The Tribunal also held that the s20 consultation procedure had not been followed and that, even if the demands had been legally valid, the tenants would have only been required to pay the statutory maximum of £250 each in respect of the major works.

Of course, the terms of any lease should be reviewed before grant or the purchase of the freehold reversion, but this case shows that it is equally important for a landlord to review the service charge provisions before embarking on a programme of major works.