Service Charge Demands

Friday, December 14, 2018

The issue of service charges is one of the most hotly contested areas of dispute between Landlords and Tenants.

Service charge demands are important because they form the basis of any legal proceedings commenced against those tenants who default in their payments. An invalid or non-compliant demand can lead to unsuccessful litigation, which can result in service charges being irrecoverable and an adverse costs order. The focus of this article is on ensuring that service charge demands are valid at the outset so the possibility of future disputes can be minimised.

What must the service charge demand include?

In many areas of property the law provides that many notices and demands are in a prescribed form e.g. ground rent demands, notices to quit and the summary of rights and obligations which must accompany service charge demands (as to which see below). However, there is no prescribed form of service charge demands and, accordingly, those issuing demands are given a broad discretion as to the form and content of them. At PDC Law we recommend that demands are clear, follow any relevant terms of the lease and comply with other statutory provisions.

The Lease

As it is the lease that forms the basis of the Landlord’s ability to recover charges it hardly needs to be said that any demands should comply with the lease provisions in terms of what can be recovered and when. To ensure compliance with the lease the following matters need to be considered:

1. How often demands can be issued (e.g. annually, bi-annually, quarterly or monthly);
2. When the charges are payable. It is not unusual, for example, for a lease to provide for one annual service charge demand which is payable half yearly;
3. Whether the service charge is payable in advance or in arrears;
4. What can be recovered (e.g. does the lease allow the Landlord to accumulate a reserve fund?); and
5. The correct percentage payable by each tenant.

Although not strictly relevant to the content of service charges, Landlords will also wish to consider (i) how the demands are to be served on Tenants and (ii) whether any demands are conditional on other matters (e.g. the certification of accounts or estimates).

Statutory Provisions

The Landlord’s Name and Address:
S.47 Landlord and Tenant Act 1987 provides that any written demand for service charges must include the name and address of the landlord, which means the immediate landlord and not the Agent or a director of a corporate landlord.

In the case of an individual Landlord, the address must be their home or place whether they carry on business and in the case of a company the address must be the registered office or place where it carries on business.

However, this provision does not apply:
Where the lease provides the service charges are to be paid to a management company (under a tripartite Lease); or
When a receiver or manager has been appointed by the Court or FTT.

The Landlord’s Address for Service of Notices:
S.48 Landlord and Tenant Act 1987 provides that a Landlord must provide the Tenant with an address in England and Wales at which notices may be served on them by the Tenant. If the Landlord’s address is not in England or Wales, an address within England and Wales in which the Tenant may serve notices must be provided.

This provision does not apply if the Court or FTT has appointed a receiver or manager.

Summary of Tenants Rights and Obligations:
S.21B Landlord and Tenant Act 1985 provides that a demand for service charge must include a service charge summary of Tenants’ rights and obligations.

As stated above the form of the summary of rights and obligations is prescribed and must:

1. Be legible in type-written or printed form of at least 10 point;
2. Include the title “Service Charges – Summary of Tenants’ rights and obligations”; and
3. Include the statement set out in regulation 3(b), which is accessible via this link http://www.legislation.gov.uk/uksi/2007/1257/regulation/3/made

Consequences of Issuing Defective Demands

The courts have determined that a failure to comply with Section 47 of the 1987 Act (obligation to include the name and address of Landlord) can be cured retrospectively. In other words by providing the name and address of the Landlord subsequently an earlier (defective) demand becomes valid. However, the ability to cure other defects is far less clear and could well be the subject of protracted litigation. Prevention is, of course, better than cure and it is always best to ensure that demands are valid at the outside. If you have a query regarding the validity of demands please do not hesitate to contact our knowledgeable team.