This page is targeted at housing professionals. Our main site is at www.shelter.org.uk

Challenging service charges

This content applies to England

Circumstances in which it is possible to dispute a service charge. Role of the First-tier Tribunal (Property Chamber).

General principles

The lease determines what services and works are to be paid for through a service charge, and how the charge is calculated. The cost of an item cannot be recovered from a leaseholder unless the lease allows it, so the first consideration if seeking to challenge a service charge demand is the lease itself. See Obligation to pay for services for more information.

Service charges are not payable until properly demanded. See The landlord's demand for information on how the demand must be made. In addition, leaseholders are entitled to information about service charges, including the opportunity to inspect the landlord's accounts. See Information about service charges.

Service charges are subject to a number of statutory controls, in particular the requirement that they:[1]

  • are reasonably incurred and for works carried out to a reasonable standard, or
  • where the charge is payable before the relevant costs are incurred, no greater than is reasonably payable.

Where works or services fall short of this reasonableness test, the landlord will only be able to recover charges to the extent that they are reasonable. See Statutory control of service charges for more information.

Where works are carried out, or certain agreements entered into, that would cost the individual leaseholder over a certain amount of money ('major works' and 'qualifying long term agreements'), there is a statutory consultation process that must be followed, unless the First-tier Tribunal (Property Chamber) grants the landlord dispensation from those requirements. Where the process is not followed, unless dispensation is granted, the landlord will be limited in the amount reclaimable in service charges. For details, see Consultation: major works and long term agreements.

Does the charge relate to a 'dwelling'?

Only service charges that relate to a 'dwelling' benefit from the statutory controls on their reasonableness. A dwelling is defined in the Landlord and Tenant Act 1985 as a 'building or part of building occupied or intended to be occupied as a separate dwelling', along with ancillary premises such as yards and gardens. Certain types of accommodation may fall outside the definition of 'dwelling' - this may arguably include a bungalow in a holiday park.[2]

In one case it was held that the leaseholders of certain units of student accommodation (bedsits referred to as 'pods') did not occupy them as separate dwellings because they each had the right to use shared kitchens, living rooms and bathroom facilities. The bedsits were only occupied as part of the leaseholder's dwelling, and the totality of the dwelling, ie the bedsit plus the shared accommodation, was not a separate dwelling as it was shared.[3] Therefore the First-tier Tribunal could not determine the service charge.

Disputing the service charge

It may be possible to dispute the demand for services charges, as outlined below:

Does the lease allow recovery?

A landlord will not be able to recover costs incurred for work and items not specified as recoverable from the leaseholder in the lease. For example:

  • repairs to the roof and parapets of a building were not recoverable as the service charge provision in the lease was limited to certain parts of the building and common parts, and the roof was not a common part[4]
  • the lease provided that the landlord could charge for cleaning, lighting, caretaking and 'any other beneficial services which may properly be provided by the lessors' and it was held that this did not allow the landlord to charge for major external repairs and redecoration[5]
  • a provision for repair will extend to replacement of something broken or worn out, but not one that is obsolete or nearing the end of its expected life[6]
  • words such as 'amend', 'renew' or 'keep in good and tenantable condition' may be sufficient to allow the landlord to charge the cost of an improved system of cladding,[7] but not to dig new foundations or to install a damp-proof course[8]
  • costs incurred by a right to manage (RTM) company that are not recoverable under the terms of the leases from which it derives its management functions must be met by the members of the RTM company; the costs of establishing and running an RTM company cannot be passed on as service charges to leaseholders unless specifically allowed by the lease[9]
  • where the occupier's responsibility for service charges in a block of flats was contractually limited to covering the cost of garden maintenance and lighting, the landlord was unable to add the cost of removing rubbish from the car park to the rear of the property to the list of service charges after the tenancy started[10]
  • where the agreement allowed the landlord to add new ('extra') services to the list of service charges, it was not permissible for the landlord to include new charges for existing services, previously provided for free and without a contractual obligation to do so.[11]

Does the charge relate to the correct period of time?

Costs incurred outside the accounting period allowed by the lease for recovery cannot be recovered until after the end of the next accounting period. In addition, where a fixed sum towards service charges is payable on account, the balance is not due until after the year end's accounts have been completed:

  • in one case, where the service charge related to works carried out before the leaseholders acquired the leasehold of a flat, the landlord could only charge for those costs if the lease specifically allowed it[12]
  • in another case, the landlord could not obtain payment to cover future costs, as the lease only allowed for recovery of amounts actually 'expended'.[13]

For more information on the timing of service charge demands and liability for payment, see Paying service charges.

Have the procedural requirements of the lease been met?

Where a landlord has not complied with conditions precedent imposed by the lease, the service charge is not recoverable. For example, where the lease:

  • required the landlord to give the leaseholders of a block of flats a copy of the specifications of the works that it proposed to carry out and cost estimates before starting the works, but the landlord failed to do so and the court decided the leaseholders did not have to pay those costs[14]
  • provided that the amount of service charges payable by the leaseholders was to be certified by a surveyor, the production of such a certificate was a precondition to the recovery of such charges and the landlord's service charge demands were held to be invalid because the charges had not been certified.[15]

Have the charges been correctly apportioned?

A landlord may only recover from each leaseholder in a block or estate the share of the total cost as determined by the lease (or as determined by a third party such as the landlord's surveyor if this is what the lease provides). A requirement to pay a 'due proportion' means a fair and reasonable proportion.[16]

Has there been a history of neglecting the property?

The cost of a landlord's historical neglect of a property cannot be passed on to a leaseholder through a service charge. In one case, where the costs of repair work were increased because of the landlord's earlier delay in acting to repair damage, those costs were not 'reasonably incurred' and the leaseholder had a defence to their recovery.[17]

Has a third party contributed to the costs?

A service charge provision in a lease should be interpreted so as to prevent ‘double recovery’. As such, the landlord was required to give credit for third-party funding, whatever its source (for example it could be from a third party’s insurers or public sector funding), received in respect of the works done and reduce accordingly the service charge to be paid by the leaseholder.[18]

Double recovery is specifically prohibited in relation to certain types of public funding which have contributed to the works.[19] See Statutory control of service charges for more information.

Where the freeholder is a social landlord in receipt of funding from a Government or Homes and Communities Agency source, the leaseholder may be entitled to have the total cost of works capped. This is sometimes referred to as 'Florrie's law'. For details see Statutory control of service charges.

Have the charges been agreed or admitted?

A leaseholder cannot challenge the reasonableness of a service charge that s/he has ‘agreed or admitted’. The fact that s/he has paid a service charge does not in itself amount to agreement or admission. An Upper Tribunal held that where a leaseholder had paid service charges for a five-year period without qualification or protest his agreement could be inferred.[20]

Is the charge for the costs of legal proceedings?

Where the lease specifies that the costs of court or tribunal proceedings incurred by the landlord are to be paid by the leaseholder, the leaseholder can apply (under section 20C of the Landlord and Tenant Act 1985) to the First-tier Tribunal (Property Chamber) to exclude some or all of such costs from a service charge demand. See Costs of proceedings for more information.[21]

The wording of a lease may also allow for the recovery of costs incurred as a result of threatened legal proceedings. Where such proceedings are not commenced the reasonableness of such costs can only be challenged under section 19 of the 1985 Act.[22]

Consider the timing of a challenge

It is common for a lease to include a clause that allows a landlord to recover costs in connection with the enforcement of the terms of the lease. To avoid liability for such costs it could be advisable for a leaseholder to pay a disputed service charge and then to challenge the validity of the amount charged in the First-tier Tribunal (Property Chamber).[23]

Applying to the First-tier Tribunal (Property Chamber)

Anyone can apply to the First-tier Tribunal (Property Chamber) for a determination as to whether or not a service charge is payable.[24] This is the case whether or not the charge has been paid, as long as the leaseholder has not admitted that s/he must pay it (paying the charge is not necessarily an admission that it is payable).

An application for a 'determination of liability to pay and reasonableness of service charges' may also be made in advance of costs being incurred - this allows landlords to check whether their proposed works are reasonable.

The Tribunal may also determine:

  • by whom and to whom the charge is payable
  • the amount payable
  • the date and manner by which the charge is to be paid.

The applicant must complete an application form and send it to the tribunal with the relevant fee where applicable. A copy of the lease must be enclosed with the application. Details of all the parties to the application must be included on the form, as well as the details of the person against whom the declaration is sought. The applicant may indicate if the matter can be dealt with without a hearing, but the Tribunal will decide whether or not it deems a hearing to be necessary. The Tribunal may transfer the case to the court if involves complex matters of law.

The Tribunal may delegate the task of sending copies of the application notice to the other parties in the proceedings, but it must deliver its decision itself. In a case where the Tribunal determined that service charges were payable and requested the landlord to forward a copy of that decision to the leaseholders, the Upper Tribunal held this was unlawful, and the decision was set aside.[25]

The Tribunal's decision only binds the parties to the case.

For more information about solving service charge and residential property disputes, including how to apply to the Tribunal, see Gov.uk.

A service charge dispute can also be transferred to the Tribunal from another court when it arises in any separate proceedings between the landlord and tenant, for instance in a landlord's claim for the recovery of unpaid service charges where the tenant disputes her/his liability to pay the full amounts demanded.[26] In such cases, the Tribunal has jurisdiction to determine only the specific issue transferred to it, not the entire claim or issues not raised by the landlord or tenant.[27]

See Civil/criminal courts and tribunals for information on the First-tier Tribunal.

Forfeiture for non-payment of service charges

A landlord is not able to forfeit the lease for non-payment of a disputed service charge unless the amount is agreed or admitted by the leaseholder, or has been determined by a court or tribunal.[28]

The power of forfeiture for non-payment of a service charge is not available at all for debts of less than the prescribed amount, unless outstanding for more than the prescribed period.[29]

See the heading 'General conditions for forfeiture' on Repossession of leasehold property for more information on the prescribed amount and period.

Other remedies

Leaseholders disputing the service charges can also apply for:

  • the appointment of a manager by the First-tier Tribunal (Property Chamber), where the landlord is making or intends to make unreasonable service charge demands (or fails to carry out her/his obligations under the lease)[30]
  • the management audit of the landlord's accounts[31]
  • the appointment of a surveyor to advise a recognised tenants' association on service charges[32] (see Consultation: major works and long-term agreements for information on recognised tenants' associations)
  • a discretionary reduction in the bill where there is a social landlord and where the leaseholder would otherwise suffer exceptional hardship[33] (see Paying service charges for more information)
  • leasehold enfranchisement (for more on this see Extend lease or buy leasehold: houses and Extend lease or buy freehold: flats).

Wales

The information on this page applies only to England. Go to Shelter Cymru for information relating to Wales.

[1] s.19 Landlord and Tenant Act 1985.

[2] s.38 Landlord and Tenant Act 1985; King v Udlaw Ltd [2008] 2 EGLR 99, LRX/186/2006, but see also Phillips v Francis (No.1) [2010] 2 EGLR 31 for a conflicting view.

[3] JLK Ltd v Ezekwe [2017] UKUT 277 (LC).

[4] Rapid Results College v Angell [1986] 1 EGLR 53.

[5] Lloyds Bank v Bowker Orford [1992] 2 EGLR 44.

[6] Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055; Fluor Daniel Ltd v Shortlands Investments Ltd [2001] EGCS 8.

[7] Credit Suisse v Beegas Ltd [1994] 1 EGLR 76.

[8] Eyre v McCracken (2001) 33 HLR 16 CA.

[9] Wilson v Lesley Place (RTM) Company Ltd [2010] UKUT 342 (LC).

[10] Wilcock v The Guinness Partnership Ltd [2019] UKUT 146 (LC).

[11] Curo Places Ltd v Pimlett [2019] UKUT 130 (LC).

[12] Hyams v Wilfred East Housing Co-operative Ltd (2007) 3 EG 126.

[13] Capital and Counties Freehold Equity Trust Ltd v BL (1987) 283 EG 563; Brent LBC v Shulem B Association Ltd [2011] EWHC (Ch).

[14] Northways Flats Management Co (Camden) Ltd v Wimpey Pension Trustees Ltd [1992] EGCS 63.

[15] Akorita v Marina Heights (St Leonards) Ltd [2011] UKUT 255 (LC).

[16] Hackney LBC v Thompson [2001] L&TR 7 CA; Admiralty Park Management Company Ltd v Ojo [2016] UKUT 421 (LC).

[17] Continental Property Ventures Inc v White [2006] 1 EGLR 85, Lands Tribunal.

[18] Sheffield CC v Oliver [2017] EWCA Civ 225.

[19] s.20A Landlord and Tenant Act 1985.

[20] s.27A(4) and (5) Landlord and Tenant Act 1985; Marlborough Park Services Ltd v Leitner [2018] UKUT 230 (LC); see also Cain v Islington LBC [2015] UKUT 542 (LC).

[21] s.20C Landlord and Tenant Act 1985; Conway & 12 Others v Jam Factory Freehold Ltd [2013] UKUT 592 (LC).

[22] Bretby Hall Management Company Ltd v Pratt [2017] UKUT 70 (LC).

[23] see for example 87 St George’s Square Management Ltd v Whiteside [2016] UKUT 438 (LC).

[24] s.27A Landlord and Tenant Act 1985, inserted by s.155 Commonhold and Leasehold Reform Act 2002; Oakfern Properties v Ruddy [2006] EWCA Civ 1389; Gateway Holdings (NWB) Ltd v (1) McKenzie (2) Geeenfield [2018] UKUT 371 (LC).

[25] Hyslop v 38/41 CHG Residents Co. Ltd [2017] UKUT 398 (LC).

[26] under s.176A and para 3 of Sch.12 Commonhold and Leasehold Reform Act 2002.

[27] Cain v Islington LBC [2015] UKUT 117 (LC); Elysian Fields Management Company Ltd v Nixon & Anor [2015] UKUT 427 (LC).

[28] s.81 Housing Act 1996.

[29] ss.167-168 Commonhold and Leasehold Reform Act 2002.

[30] s.24 Landlord and Tenant Act 1987, as amended by s.85 Housing Act 1996 and s.160 Commonhold and Leasehold Reform Act 2002; R (on the application of Cawsand Fort Management Co Ltd) v First-tier Tribunal (Property Chamber) and R Kane & ors (interested parties) [2014] EWHC 3808 (Admin); Queensbridge Investments Ltd v Lodge and others [2015] UKUT 635 (LC).

[31] ss.76-83 Leasehold Reform, Housing and Urban Development Act 1993.

[32] s.84 Housing Act 1996.

[33] Social Landlords Discretionary Reduction of Service Charges (England) Directions 2014.

Back to top