Service Charge Demands: why are they an ongoing hot topic?
What is ‘Service Charge’?
There are significant costs involved with the maintenance and administration of any property development. These costs are usually the landlord’s responsibility but the landlord recovers them from the tenants. This charge to the tenants is known as service charge.
The Service Charge Demand
Disputes between landlords and tenants in respect of service charge recovery are, unfortunately, very common. An area of contention that we often see relates to whether the landlord has validly demanded the service charge from the tenants, meaning the tenants are liable for payment.
The landlord has a duty to ensure that every demand for service charge captures the information contained within the lease and complies with certain statutory provisions. Whilst it is understandable that mistakes can happen, the implications of this can be significant, hindering the smooth running of the development and leading to unnecessary legal costs being incurred in litigation.
To mitigate this, particular attention should be given to the wording of the service charge provision in the lease and the relevant statutory provisions.
The lease will ordinarily provide:
- A description of the items the tenant is to contribute towards via the service charge
- The proportion payable by the tenant
- Whether the service charge is variable or fixed in amount (or both)
- Whether the service charge is payable in advance or in arrears of the costs being incurred
- Whether the service charge is recoverable annually, bi-annually, quarterly, or monthly
- To whom the service charge is payable
- Whether any shortfall in service charge is recoverable from the tenant
- Whether any overpayment is to be paid to the tenant (or be placed in the reserve fund)
It is important for the above to be considered when calculating the service charge payable and preparing the service charge demand.
Unlike demands for the payment of ground rent, there is no prescribed form for a service charge demand, however there is guidance as to what must be included.
- The service charge demand must contain the landlord’s name and address. If the landlord’s address is not in England or Wales, an address in England or Wales must be given.
- The service charge demand must include an address in England or Wales to which notices can be served.
- The service charge demand must be accompanied by a ‘summary of tenants’ rights and obligations’ in a prescribed form.
- The service charge demand cannot request payment for costs that were incurred by the landlord more than 18 months prior to the service of the demand (unless the landlord has notified its tenant in writing within that time that those costs have been incurred).
Remedying Defective Demands
If a service charge demand does not comply with these requirements, the landlord can generally remedy this by serving a new demand that does comply. However, the rules are technical to say the least so, if you need any guidance, please don’t hesitate to contact our Real Estate Disputes team.