Liability for service charges

Under the Landlord and Tenant Act 1985, a tenant, including a long leaseholder of a local authority, has rights to information about service charges. These rights have been added to by the Commonhold and Leasehold Reform Act 2002.

The tenant is entitled, on making a written request, to a summary of the relevant costs incurred in the last accounting year or the previous twelve months. The summary should give details of all the costs incurred by the landlord for repairs and services. It should also include the total of any money received by the landlord from the tenants for service charges yet to be used and information concerning any renovation grants received by the landlord.[1]

This summary must be supplied within one month of the tenant's request, or six months from the end of the period covered in the summary, whichever is the later date.

Inspection of accounts

The tenant can also ask to inspect the accounts, receipts and other supporting documents. The landlord cannot charge for this other than for taking copies of the documents.[2] Where such documents are held by a superior landlord, the landlord can require their disclosure, and the superior landlord is then under the duty to allow inspection.[3] Where the tenant assigns their ownership, a request already made continues, but the landlord cannot be required to comply more than once for any one property and any one period.[4]

Criminal offences

A landlord, with the exception of a local authority, National Park authority or new town corporation,[5] can be prosecuted for failure to respond to either a request for a summary of, or the right to inspect, the accounts without reasonable excuse.[6] On conviction a landlord is liable to a fine. A tenant or the local authority can prosecute, although the latter very rarely do so. A tenant cannot apply for an injunction in the civil courts if a landlord does not comply with the tenant's request.[7] Local authorities may prosecute under any offence contained in the Landlord and Tenant Act 1985.

Under the Commonhold and Leasehold Reform Act 2002, the landlord must serve a notice stating the tenant's rights and obligations in relation to service charges when making any demand for service charges. The tenant has a right to withhold payment in the absence of a valid notice.

The form that notice should take is to be set out in regulations.[8]

The starting point for any consideration of liability for service charges is the lease.

The lease usually contains a separate clause or schedule detailing the services and repairs that the landlord is required or permitted to carry out and the tenant's liability to contribute to the costs of doing so. The tenant is liable only for items which the lease says they are liable for.

Interpretation by courts

The courts will interpret any clause by applying the principles of contractual interpretation, in particular they will consider the wording used, its context and have regard to its commercial purpose.[9]

For example, where the lease:

• provided for the landlord to keep the building insured 'against explosions', it was held to include taking up terrorism insurance[10]

• contained a covenant on the part of the landlord to carry out repairs but not improvements, a separate covenant binding the leaseholder to contribute a 'fair proportion of the cost of the improvement' was implied in a poorly drafted lease to indicate that a power to carry out improvements was intended to be included[11]

• provided for the landlord to keep the premises and 'additions thereto' in a good state of repair and for the leaseholders to pay a proportion of the associated costs, the leaseholders were held liable to contribute to the repair costs of conservatories which had been built in breach of the lease by previous leaseholders, as those conservatories formed part of the premises to which the landlord's repairing obligations extended and there was no reason for their historic unlawfulness to make any difference[12]

• allowed the freeholder to recover the cost of fulfilling its obligations under a 'repair and redecoration' covenant through a service charge, the obligation to 'keep in repair' only applied where there was damage that needed to be made good[13]

• obliged the landlord to provide services (heating and hot water) and ensure they were maintained at a reasonable level, the landlord was allowed to recover the cost of fitting a new hot water and heating system[14]

Legal costs

Legal costs incurred by the landlord in relation to the payment of service charges may be recoverable from the tenants under a general service charge clause in the lease, however the language must demonstrate a clear intention that such expenditure is recoverable.[15]

A 'sweeping clause'

It is not generally in the interest of the tenant for there to be no mechanism for the landlord to recover costs of essential works or maintenance. Often, a general 'sweeping' clause will allow the landlord to recover the costs of a range of items not specified in the lease but that lies within the general wording of the sweeping clause. Even a sweeping clause has its limits and will be interpreted according to its wording.[16]

It is possible for either landlord or tenant to apply to the First-tier Tribunal (Property Chamber) for the terms of the lease to be varied if the lease fails to make satisfactory provision in respect of:[17]

• repair or service obligations

• insurance

• recovery of expenditure

• computation of service charge

A typical example where this power might be exercised is an estate where new properties are built, or part is sold, as a result of which the service charge proportions stated in the existing leases no longer add up to 100 per cent. An application to vary the lease would likely be easier to achieve than obtaining consent from all tenants and mortgagees, even if the proportions could be agreed.

The provision does not appear to allow the Tribunal to vary leases that work but which are perceived as unfair by landlord or by one or more of the tenants.

Disputes about service charges are common. If the dispute cannot be resolved, a leaseholder or group of leaseholders may apply to the First-tier Tribunal (Property Chamber) for a resolution of the dispute.