Wednesday, 8 March 2017

Service Charge Wars and Who Bears the Landlord's Costs

Hands up if the service charge for your flat is the bane of your life? Wow, that's too many hands to count right now. I'll set aside next week for that. Let me know if your arms ache in the meantime.

Residential service charges can be challenged before the property tribunal. But what can happen then is that, despite the result, the landlord charges up its costs for dealing with the case - and these could include lawyers and surveyors' fees - to the service charge account because that is what the lease permits. The result is that you and your co-tenants end up paying them. Not very funny.

Hello, Good Evening and Welcome to section 20C of the Landlord and Tenant Act 1985. This enables you to apply to the tribunal (or equally to the county court if there are proceedings there relating to service charges or to the upper tribunal if there is an appeal against a decision of the lower tribunal)for an order which prevents the landlord from passing on those costs. The order may let you off the hook entirely, let you off the hook partially or let one or more of your co-tenants off the hook, wholly or partially. You could even apply for an order preventing costs incurred by the landlord in a challenge by a co-tenant being passed on to you.

In a tribunal appeal by the landlord which has just been decided * the lower tribunal had decreed that the landlord could only pass on 25% of its costs relating to that hearing. That meant that the tenant who was challenging service charges would be liable for just 6.16% of the costs which worked out at around £3.  The landlord was appealing against that decree and on other points.  After some encouragement from the appeal tribunal (ridicule, shotgun to the head, astonished faces - that sort of thing) the landlord agreed to abandon that part of the appeal.

But the landlord's costs for the appeal hearing were substantial which was a serious matter for the landlord since its only income was from the service charges it collected from the tenants of the 30 apartments in the development.  The tenant pleaded with the appeal tribunal to prevent the landlord from adding on its appeal costs to the service charges. The appeal tribunal refused. The landlord had succeeded in the appeal on almost all points and against the tenant's opposition. That the landlord had no resources apart from service charge income was a crucial point. It was just and equitable, said the appeal tribunal,that the tenant should bear his share of the costs by them being added on to the service charges.

Whether you can expect to succeed on an application under section 20C of the 1985 Act will depend on such factors as the conduct of each side; the circumstances of each side; who has won (and very much so); and whether or not the landlord does have resources other than service charge income.

On 6 April 2017 section 131 of the Housing and Planning Act 2016 will come into force. It enables courts and tribunals to restrict the landlord's ability to recover its costs of taking part in legal proceedings by way of an administration charge rather than a service charge.

* The case was Bretby Hall Management Company Limited v Christopher Pratt [2017] UKUT 0070(LC)

For more (much more) on battles between landlord and tenant, see Breaking Law at chapter 43.