Two decisions in the Upper Tribunals (Lands Chamber) illustrate where landlords must be careful to ensure that they are complying with residential service charge and consultation requirements.
What is a residential service charge?
A service charge is payable by a tenant, for costs the landlord occurs that are not covered by a tenant’s rent. Examples include:
Protected by legislation, residential landlords are not able to charge tenants excessive service charges and should be able to prove that costs incurred are for services of a reasonable standard.
Why tenant consultations are necessary
Before entering into a contract with a tenant, landlords must decide whether to consult with tenants. If they choose not to, landlords will only be able to recoup the statutory maximum in service charge from tenants.
In certain circumstances landlords must consult with tenants. For example, if works will exceed £100 in any one year for any one tenant under a qualifying long term agreement (QLTA), over a term of more than 12 months, or if qualifying works will exceed £250 for any one tenant.
In a recent case concerning the consultation requirements under the Landlord and Tenant Act 1985, the Tribunal held that a management company had failed to comply with the requisite requirements for the following reasons:
- The place and hours specified in the notice inviting tenants to inspect estimates for works were not reasonable
- The estimates were not available for inspection at the place specified and during the hours specified
What are the consultation requirements?
- Give tenants notice of proposed works, including an explanation of why they are necessary. Written observations must also be invited and taken note of at this point.
- Obtain estimates, including any from contractors nominated by a tenant or a recognised tenants’ association (RTA)
- Provide a statement illustrating the estimated costs from at least 2 different estimates, with a summary of any written observations received and the landlord’s responses to these
- Provide a notice detailing when and where estimates can be inspected that invites further written observations in relation to the estimates, which again must be taken note of
- Give reasons for selecting the successful contractor
Time limits for demanding service charge from tenants
In another case, the Tribunal held that where service charge was demanded from a tenant (under a residential lease) this had not become due, because the demand did not comply with section 47 of the Landlord and Tenant Act 1987.
Landlords must issue a demand for service charge within 18 months, following the completion of works or provision of a service. If at this time, a landlord is not able to specify an exact amount of costs incurred for tenants to pay, the landlord must specify a figure that they would be happy to accept.
Failure to comply with section 47 and residential service charge requirements could result in landlords facing disputes and delays in collection of service charges.
Consequences of failure to comply with consultation requirements
If landlords do not comply with the current consultation requirements, they will not be able to pass on costs to tenants above the following maximum amounts:
- £100 for each tenant each year for QLTAs
- £250 for each tenant for qualifying works
Advice about residential service charge and consultations
For advice about the types of items to discuss during a consultation with a tenant, or for issues around specifying or demanding service charge, speak to a specialist Commercial Property solicitor at Bray & Bray.