Practical Guidance For Service Charge Recovery

Louise HebbornPartner, Stephensons Solicitors LLP

Introduction

Aim to provide a practical approach for dealing with services charges, section 20 consultations for in-house trade teams and recovering unpaid service charges, as well as information and guidance on key points of law in this area.

Overview

1. Service charges generally.2. Difficulties encountered. 3. Service charge challenges.4. Consultations for larger items of works.5. Recovering unpaid service charges.

Service Charges Important to registered providers

What are they?

Section 18(1) Landlord and Tenant Act 1985 definition

Problems encountered Difficult leasesHistorically badly managed properties picked up by portfolioAbsence of a sinking fund or reserveAn ineffective sinking fund or a reserveNecessary works not provided for by the leaseChallenges to the reasonableness of the service chargesSection 20 consultations Recovering service charge costs

Reasonableness of the ChargesSection 19 Landlord and Tenant Act 1985

Costs Reasonably incurred

The works were required

Works carried out to a reasonable standard

Tribunal’s role

Periodic tenants

Section 20 Consultations

What is it?

Section 20 of the Landlord and Tenant Act 1985

“Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either – (a) complied with in relation to the works or agreement or(b) dispensed with in relation to the works or agreement by a leasehold valuation tribunal

Section 20 Consultations

What is it?

Section 20 of the Landlord and Tenant Act 1985

“Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either – (a) complied with in relation to the works or agreement or(b) dispensed with in relation to the works or agreement by a leasehold valuation tribunal

Section 20 Consultations

When do consultations need to take place?

Qualifying works which will cost leaseholders more than £250 each.

Long term agreements of more than 12 months for works, supplies, or services which will cost each leaseholder more than £100 per year.

Long term agreement where works will cost any leaseholder more than £250.

Section 20 Consultations

What is the procedure?

Qualifying works

Notice of intention30 days for leaseholder’s observationsEstimates 2 and one from a nominee30 days to respondIf chose either the lowest estimated contractor or leaseholder nominated contractor can enter into contractOtherwise within 21 days of entering into the contract notice must be served setting out reasons for awarding the contract and responding to the observations

Section 20 Consultations

Procedure continued

Qualifying Long Term Agreements

Similar process but the leaseholder cannot nominate a contractorNotice of intention30 days given for observationsProposal with details of the parties, connections with the contractorEstimate of the contributionTotal expenditure if can or when that will be givenThe duration of the agreement(This is not an exhaustive list)

Section 20 Consultations

Procedure continued

Qualifying Works under Long Term Agreements

SimplifiedNotice of intentionObservations21 days to consider the observations and provide a response but free to continue works

Section 20 Consultations

Case Law

Phillips and Others vs Francis [2014]Single set of qualifying works;Where the works are to be carried outWhether they are the subject of the same contractTiming of the worksWhether the works are connected or different in natureWhether the works are under the same contractThe planning of the works and the implementation

BDW Trading Ltd & others v South Anglia Housing Ltd [2013]

Section 20 Consultations

Dispensation from Consultations

Emergency Works

Section 20A Landlord & Tenant Act 1985

Daejan v Benson case

The DemandIn writing

Section 21 Landlord & Tenant Act 1985

Section 21A Landlord & Tenant Act 1985

Section 21B Landlord & Tenant Act

Is the service charge payable in advance?

If not section must issue service charge demands within 18 months

Summary for service charges

Working with tenants

Know the lease

Reasonable costs

Comply with any consultation requirements

Issue formal demands which comply with the legislation

Recovery of Service ChargesAfter the demand

Consider ADR

Forfeiture and possession

Recovery of Service ChargesForfeiture and possessionWhat is it?

When can it be used?Breach occurredOver £350 in value or outstanding for over 3 years

ProcedureSection 146 noticeRequirement for a reasonable period of time to remedy the breachCourt Order for possession

Recovery of Service ChargesCosts

LeaseChaplair v Kumari [2015] Court of Appeal caseRule 44.5 Civil Procedure Rules

Recovery of Service ChargesBankruptcy

Recovery of Service ChargesTop tips

Act quicklyFollow up PoliciesInvestigate leaseholder’s financial meansBest method of recoveryInterest paymentsCosts

Questions