The Leasehold and Freehold Reform Bill and Service Charges
23 Jan 2024 | Joanne Wong
Table of Contents
The Leasehold and Freehold Reform Bill was introduced to Parliament on 27 November 2023 with the aim of delivering on the government’s manifesto commitments on leasehold reform. It is currently at the Committee Stage in the House of Commons and it is anticipated to be passed before the next General Election.
Whilst a key part of the Bill relates to lease extensions and the Right to Manage, this article focuses on the Bill’s provisions relating to service charges.
Service charges are payments made by the tenant to their landlord for the costs incurred in providing services in relation to a property, such as for general maintenance or repairs. The way in which a service charge is worked out is usually set out in the Lease and landlords should make accounts available to the tenant which comprises the annual service charge.
Service charges is a big area of dispute we see at Osbornes between leaseholders and their landlords, including the following issues:
- Overcharging by the landlord or the management company for services, maintenance or administration;
- Undercharging over a period of time which then results in a huge deficit and a disproportionate call for funds from the leaseholders;
- Lack of evidence or documentation, or a refusal to provide documentation, to back up a service charge;
- Poor quality maintenance or repairs being carried out;
- Unresponsive/absent landlords or management companies not complying with the Lease provisions or letting the building go into disrepair.
- The landlord’s failure to adequately insure the property in accordance with the Lease provisions which result in loss to the leaseholder;
- Allegation of historic neglect, in other words where a leaseholder may be seeking to argue set off against any demand for service charges because the costs of remedying the defect could have been avoided if the property had been properly maintained or repaired earlier, when the landlord was obliged to do so.
The new Bill attempts to “improve fairness in leasehold” and to increase the transparency of service charges.
Currently the law provides some protection for leaseholders in that by law, variable service charges must be reasonably incurred and where costs relate to work or services, those work or services must be of a reasonable standard. However the onus is placed on leaseholders seeking to challenge the reasonableness of service charges by making an application to the First Tier Tribunal (Property Chamber). This can often deter leaseholders from challenging them due to the time and costs involved in making such an application.
Often, leaseholders are simply frustrated by the lack of information or evidence which are provided with the annual service charges accounts, which could go some way to explain how or why the costs have been incurred.
The proposals in the Bill intend to drive up transparency of financial and non-financial information that leaseholders must receive from their landlord. This includes how service charges costs are presented and greater financial information when the annual written statement of accounts are prepared. In addition, the proposals intend to give tenants the ability to compel a landlord to provide relevant information.
At Osbornes, we can advise both landlords and tenants on service charges dispute, including representation at the First-Tier Tribunal if required. Please do not hesitate to contact our property litigation team on 0207 485 8811 for expert legal advice.
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