Property Matters November 2007

Residential service charges - More burden than benefit?

Increasing the level of regulation of residential service charges has kept legislators very busy over the past 20 years.  Now, as of 1 October 2007 a new tranche of legislation has come into force: Section 153 of the Commonhold and Leasehold Reform Act 2002.

Service charges and statements of rights
This legislation inserted a new section (21B) into the Landlord and Tenant Act 1985, making it a requirement that, on making a demand for service charges, all residential landlords provide to tenants a notice summarising their rights and obligations in relation to service charges.  The Service Charges Regulations 2007 set out what information must be included in that notice.

Administrative charges and statements of rights
At the same time, clarification was provided as to what information should be included in the 'statement of rights' which, since 2003, residential landlords have been required to provide to tenants when making demands for "administrative charges".  The concept of "administrative charges" covers landlords' costs for matters such as granting an approval under the lease, or taking action in relation to a tenant's default.  Until now, landlords have been in the dark as to what exactly should be included in such a notice.  That information is now set out in the Administration Regulations 2007.

Ensuring tenants know their rights
Each and every time a landlord makes a demand for service charges or administrative charges, it must also give the tenant a notice including all the information set out in the relevant regulations, which will include:

• The fact that the tenant has the right to apply to the leasehold valuation tribunal for a determination as to whether the charge is payable;

• Information on other tenant rights in respect of charges under the lease (such as the right under Part 4 of the Landlord and Tenant Act 1987 to apply for a lease variation); 
• The fact that the tenant has the right to obtain a summary of costs from the landlord and to inspect documents relevant to the charge;
• The fact the tenant has the right to appoint a surveyor or accountant to carry out an audit.
• Those rights existed prior to 1 October 2007.  However, the recent changes have reversed the burden so that tenants no longer have to request details of their rights from their landlord.

Consequences of default
From now on, if a landlord fails to provide a notice with a demand for charges, the tenant will have the right to withhold payment of that charge until such a notice is received.  The only exception to that rule is where service charges were due for payment before 1 October 2007 and the landlord served the first demand for those charges before that date, in which case a notice need not be supplied with any further demands for those charges, even if those further demands are served on or after 1 October 2007.

Where the tenant has the right to withhold payment because of failure to provide the requisite notice, any provisions in the lease relating to non-payment or late payment will cease to have effect until the landlord provides one.  So, for example, a landlord will not be able to recover possession of the premises by reason of non-payment, or charge interest on the unpaid amount, until a notice is provided.