1. Home
  2. |
  3. Information Hub
  4. |
  5. News
  6. |
  7. Navigating service charges

Navigating service charges

Landlords must annually serve a service charge demand to leaseholders for variable charges.

One of the most common areas of dispute in long leasehold property is undoubtedly service charges, particularly when it comes to recovering larger contributions from leaseholders for maintenance works or repairs.

In this article – which is the first in a three-part series exploring some of the key issues affecting the long leasehold sector – Mary Rouse, legal director in the Property Dispute Resolution team, breaks down the process for consulting on qualifying works and qualifying long-term agreements (QLTAs).

Service charges: fixed or variable?

Variable services charges are usually estimated by the landlord or management company at the beginning of the year, and actual expenditure is confirmed at the end of the year. Leaseholders can question variable service charges by applying to the First Tier Tribunal to determine if they are reasonable.

Fixed service charges cannot be challenged through the Tribunal. If leaseholders want to dispute fixed charges, they must do so through the county court.

The lease is, of course, the go-to document for any information about what is covered within the service charge and when it is payable.

Key points to note

Landlords must annually serve a service charge demand to leaseholders for variable charges, including the prescribed “summary of leaseholders’ rights and obligations.” Failure to do so means the charges are not properly demanded and are unlikely to be recoverable

Many landlords will be aware of the 18-month rule under Section 20(B) of the Landlord and Tenant Act 1985, and that it limits the time to make service charge demands. If the costs were incurred more than 18 months previously, the landlord is limited to recovering costs due for the past 18 months only.

However, it’s worth noting that if tenants are notified in writing within 18 months of incurring costs, and informed of their obligation to contribute, even if the correct demand is not served at the time, the 18-month limit doesn’t apply – landlords could serve a late demand with the summary of rights and still recover costs incurred more than 18 months previously.

Put simply, failure to include the summary of rights in the demand is not necessarily fatal for landlords, providing you have notified the tenant in writing that the costs have been incurred and will be payable further down the line.

Qualifying works: recovering larger contributions from leaseholders

Section 20 is designed to protect residential leaseholders against excessive service charges, and its rules are quite simple. Landlords must consult with their leaseholders before carrying out any maintenance work or repairs to a residential freehold property where the contribution from any one leaseholder will exceed £250.

The process for consulting on qualifying works is broken down into three stages: notice of intention, notice of estimates, and a final notice of who has been awarded the contract.

Stage one: notice of intention

Landlords must first issue a notice indicating your intention to carry out works. This notice should be distributed to all leaseholders and any recognised tenants’ associations, and must:

  • Describe the works proposed and the reasons for the proposed works.
  • Invite the leaseholder to give their observations in writing within 30 days.
  • Inform leaseholders of their right to nominate a contractor they think would be suitable, to provide an estimate for the works.
  • Outline the criteria for contractor selection. While this isn’t a legal requirement, it clarifies that meeting these criteria is a crucial condition for any potential contract and therefore ensures leaseholders understand that nominated contractors must meet these requirements to be genuinely considered for the contract.
  • Obtain estimates from any contractors nominated by leaseholders. Beyond that, the Regulations state that landlords must “have regard” for any leaseholder observations received by the due date.

Regarding nominations made by leaseholders, the landlord must try to obtain an estimate from the contractor/s who received the most nominations, even if the recognised tenants’ association has also put in a nomination.

Stage two: notification of estimates

 A second notice, known as the notification of estimates, must then be issued by the landlord. This should include:

  • Details of at least two estimates that the landlord has obtained.
  • At least one estimate from a contractor who is not connected with the landlord in any way.
  • An invitation to the leaseholder to again give their observations in writing within 30 days. The landlord must have regard for any such observations, but does not have to act upon them.

Section 20 Regulations require landlords to be open and transparent about any existing relationships they may have with contractors. For example, landlords must inform leaseholders if they are a director of a contractor or have a close relative who is connected with a contractor company.

Stage three: notification of who the contract has been awarded to

A further notice should be sent to leaseholders within 21 days of entering into a contract with the chosen contractor. This notice should:

  • Notify leaseholders as to who the contract has been awarded to.
  • Set out the reasons for the award of the contract.
  • Provide a summary of any leaseholder observations that were received.

Please note, this third notice is not required if the contract has been awarded to a contractor nominated by either a leaseholder or the recognised tenants’ association, or if the contract has gone to the lowest bidder.

“Having regard”

Multiple tribunal decisions have made it clear that the S20 Consultation process must be treated as a genuine consultation process. There should be proper engagement with leaseholders and proper regard given to any observations made. Although, “having regard” is a rather vague requirement, the Regulations say that landlords should reply to observations within 21 days of receipt – don’t just ignore them.

What about qualifying long-term agreements?

Again, the law requires there to be a consultation before agreeing to any qualifying works or services that will be provided for a period of more than 12 months, known as a qualifying long-term agreement (QLTA), which requires any one leaseholder in the block or development to pay a variable service charge over £100. The process for QLTAs is similar:

Stage one: intention

The landlord is required to give written notice of intent and must:

  • State the reason for considering the QLTA to be necessary.
  • State the reason why any potential qualifying works are necessary.
  • Invite written observations in relation to the proposal within 30 days.
  • Invite nominations of other suitable firms to carry out the contract, again within 30 days.
  • As with notice of qualifying works, set out in this notice brief criteria that any appointed firm would have to meet.
  • Once again, obtain estimates from any nominated firms, and must have regard for any observations received.

Stage two: notification of estimates

The landlord must give written notice of any proposals or estimates, which should include:

  • Copies of estimates, or the option for leaseholders to come and inspect estimates received at an agreed place/time.
  • If possible, estimated contributions from each tenant for each proposal. If this is not possible, then the notification should indicate total expenditure – either unit cost or daily/hourly rate.
  • An invitation to tenants to make observations, within the relevant period (30 days).

Stage three: notice of contact

Within 21 days of entering into the QLTA, the landlord must give written notice which states the reasons for entering into the agreement and summarises any observations and the landlord’s responses to them.

As above, this third stage notice is not necessary if the contract is with the person with lowest estimate, or the only nomination from leaseholders.

What if a long-term agreement includes qualifying works?

In this instance, two consultations will be required. Where the long-term agreement includes provision for the carrying out of works to the property, i.e. general maintenance, and these works will result in a charge to any one leaseholder of more than £250, then a separate consultation must be carried out.

What happens if you don’t consult?

There are a few reasons for failure to consult:

  1. In some cases, a landlord doesn’t realise that they have to.
  2. More likely, is that emergency works are needed because there is a threat to life, for example, and so there simply isn’t time to consult.
  3. Finally, for very bespoke work, it may not be possible to get more than one estimate which can remove the need for consulting.

The good news is that under the legislation, landlords can apply to the Tribunal for dispensation from having to consult. However, if you fail to consult and you can’t get dispensation, the landlord is restricted to recovering no more than £250 per leaseholder towards the works or £100 per leaseholder in respect of a qualifying long-term agreement.

Ultimately, the key takeaway from this is simple. As landlords, to ensure you can recover the cost of major works or long-term agreements from service charges, you must consult, and consult properly.

Service charge advice

Mary Rouse is a Legal Director in Lodders’ Dispute Resolution team. She specialises in residential property disputes, including long leasehold issues, boundary disputes, adverse possession, landlord and tenant disputes, housing management issues for social and private landlords, residential disrepair, and Trusts of Land and Appointment of Trustee Act (TOLATA) claims.

For help and advice relating to service charges, please get in touch.

Contact us

Need more advice?

For help with a legal problem or more information on any of our services at Lodders, please get in touch with our friendly team. You can contact us via the number or email address below, or fill in the form and we will get back to you as quickly as we can.

Mary Rouse, Legal Director, Lodders Solicitors LLP
Legal Director

Mary Rouse