Before a service charge becomes payable, a number of contractual and statutory requirements must be satisfied. Failing to comply with those requirements can delay recovery, reduce the amount that can be recovered, or in some cases prevent recovery altogether.
This checklist highlights the key issues that should be considered before any residential service charge demand is served.
The lease is always the starting point.
Before issuing a demand, ensure that:
- the service charge is being demanded on the dates specified by the lease
- the lease allows the landlord to make the demand in the way proposed
- every item being demanded is recoverable under the terms of the lease
- you are not attempting to recover costs which fall outside the contractual service charge provisions
- any reserve fund or sinking fund contribution is expressly permitted by the lease
It is also sensible to check whether the lease requires any certification of the service charge accounts or expenditure before a balancing charge or final demand can be issued. Many leases contain specific certification requirements which should not be overlooked.
Check the Statutory Requirements
Even if the lease has been complied with, the statutory requirements must also be satisfied.
Sections 47 and 48 of the Landlord and Tenant Act 1987
Every service charge demand must comply with sections 47 and 48 of the Landlord and Tenant Act 1987.
The demand should clearly identify the landlord together with the correct address.
Where the landlord is an individual, the demand should state that individual’s address. Simply providing the managing agent’s address or using a care of address is unlikely to satisfy the statutory requirements.
Where the landlord is a company, the demand should state the company’s registered office.
The demand must also include an address in England and Wales at which notices may be served on the landlord.
Failure to comply means that the service charge is not due until the defect has been corrected.
Include the Summary of Rights and Obligations
Section 21B of the Landlord and Tenant Act 1985 requires every residential service charge demand to be accompanied by the prescribed Summary of Tenants’ Rights and Obligations.
The prescribed wording should be used and should be clearly legible.
If the summary is omitted or does not substantially comply with the prescribed form, the service charge will not become payable until a compliant demand is served.
Check the Section 20B Time Limit
Before demanding historic expenditure, always consider section 20B of the Landlord and Tenant Act 1985.
As a general rule, service charge costs cannot be recovered if they were incurred more than eighteen months before the demand was served unless the leaseholders were notified in writing within that eighteen month period that those costs had been incurred and would subsequently be demanded.
This should be one of the final checks before any historic expenditure is included within a demand.
Consider Whether Section 20 Consultation Applies
Before demanding the cost of major works or a qualifying long term agreement, consider whether consultation was required under section 20 of the Landlord and Tenant Act 1985.
If the consultation requirements have not been complied with, recovery is generally limited to:
- £250 per leaseholder for qualifying works
- £100 per leaseholder per year for qualifying long term agreements
The Tribunal has the power to grant dispensation from the consultation requirements, but unless dispensation has been obtained, recovery will normally be restricted to the statutory limits.
The consultation process itself is a substantial topic and is one which we will cover in a separate article.
Consider the Building Safety Act 2022
Where the building falls within the scope of the Building Safety Act 2022, an additional level of scrutiny is required.
Before issuing any demand, consideration should be given to whether the costs being recovered are affected by the leaseholder protections contained within Schedule 8.
In particular, care should be taken to ensure that leaseholders are not being asked to contribute towards costs which are prohibited from recovery under the statutory protections.
The Building Safety Act has fundamentally changed the recoverability of certain remediation costs and should always form part of the pre demand review for relevant buildings.
Do Not Forget Administration Charges
If the demand includes administration charges, remember that separate statutory requirements apply.
Administration charges must be accompanied by the prescribed Summary of Rights and Obligations relating specifically to administration charges.
Failure to include the required summary will prevent the administration charge from becoming payable until the defect has been remedied.
Final Thoughts
Serving a compliant service charge demand is about far more than producing an invoice.
A properly prepared demand should satisfy both the contractual requirements contained within the lease and the numerous statutory requirements imposed by Parliament.
Before issuing any demand, ask yourself:
- Does the lease permit every item being demanded?
- Have sections 47 and 48 been complied with?
- Has the prescribed Summary of Rights and Obligations been included?
- Have the section 20B time limits been considered?
- Has any necessary section 20 consultation been completed?
- Have the Building Safety Act protections been reviewed?
- Are there any certification requirements under the lease?
- If administration charges are included, has the correct statutory summary been provided?
Taking a few extra minutes to work through this checklist can avoid months of unnecessary disputes, Tribunal proceedings and unrecoverable costs.