Variable service charges in England and Wales
In England and Wales, variable service charges are covered by the Landlord and Tenant Act 1985.1ss18-30 LTA 1985 The Act applies to both private and public and social sector landlords. If your landlord used to be a council but it sold the property to a private landlord, you have similar rights under the Housing Act 1985.2ss47-51 HA 1985 Variable service charge
An amount payable directly or indirectly by a tenant as part of, or in addition to, rent for services, repairs, maintenance, improvements, insurance, or management costs, the whole or part of which varies according to the landlord’s costs or estimated costs.3s18 LTA 1985 This is a broad definition and includes payments for fuel, whether made directly to the landlord or indirectly through a landlord’s meter. These provisions apply to all tenants unless you are:
•a tenant of a local council or any other public authority, unless your lease is for over 21 years or was granted under the ‘right to buy’ legislation;4s26 LTA 1985or •a tenant whose rent has been registered with a service charge as a fixed sum.5s27 LTA 1985
Your landlord can recover the costs of the services s/he provides (eg, as heat, light or cooking facilities) only if the service is of a ’reasonable’ standard and the costs are ’reasonably’ incurred.6s19 LTA 1985 There is no one definition of ‘unreasonable’, but it includes something which can be proved to be excessive. What is reasonable is a question of fact and degree.7See Russell v Laimond Properties Ltd (1983) 269 EG 947; Levitt and another v Camden LBC [2011] UKUT 366 (LC) If the charges are based on an estimate in advance, the estimate must be reasonable and, after the costs have actually been incurred, the charges must be adjusted by repayment, reduction of future charges or additional charges. The question of the reasonableness of an advance payment includes:8Avon Ground Rents Ltd v Cowley and others [2018] UKUT 92 (LC) •the time at which the landlord became (or is likely to become) liable for the costs; and
•the certainty of the costs; and
•the certainty that the works would be carried out and paid for during the period covered by the advance payment.
If paid in arrears, most charges cannot relate to periods of more than 18 months before.9s20B LTA 1985 Similarly, charges may not be reasonable to impose where major works are undertaken and charged to an individual tenant or leaseholder who may only have a short period left in occupation of the property. You are not liable for any costs included for any service charge which was incurred more than 18 months before a demand for payment of the service charge is served. Only if you are served with a notice in writing during the 18 months that the costs have been incurred, and you are required to meet them, does a right to recover the charges arise.10s20B(1) and (2) LTA 1985; Brent LBC v Shulem B Association Ltd [2011] EWHC 1663; Gilje v Charlgrove Securities [2004] 1All ER 91 This is to prevent you from being taken by surprise by an unexpected bill for services or works carried out in earlier years.11As Etherton J explained in Gilje v Charlegrove Securities Ltd [2003] EWHC 1284 (Ch) at (27)
Application to energy bills
In the context of energy bills, this is likely to be the point at which the charges are identified as becoming payable, not necessarily when all the services were provided or used. For example, in one case, the management of an estate received and paid gas bills from the wrong energy company.12OM Property Management Ltd v Burr [2013] EWCA Civ 479 The mistake was found some years later and a higher bill had to be paid to the actual gas supplier, with costs passed on in the service charges. The Court of Appeal ruled that, although the intention of Parliament was that tenants should be protected against stale claims, the argument that costs recoverable as a service charge are incurred when services are used was rejected. A liability did not become a recoverable cost until it was established, either by being met or paid or possibly by being set down in an invoice or certificate under a building contract. The Court also noted that estimated costs could be legitimately included in a service charge. In a case where a leaseholder had disconnected his flat from the landlord’s heating system, the Upper Tribunal ruled that, in the absence of any express obligation in a lease to contribute to the costs of communal heating, liability to pay a service charge in respect of ongoing heating ceased when the appellant disconnected the communal heating system and removed radiators it.13Saunderson v Cambridge Park Court Residents Association Ltd [2018] UKUT 182 (LC) The tribunal also considered that the question of whether heating had been provided to the flat to a reasonable standard was a relevant one. In a case involving the recouping of energy costs (including the cost of reading meters, a standing charge and preparing energy bills) through a service charge, the Upper Tribunal found the landlord was not entitled to demand such as associated costs as part of a contractual clause concerning the basic cost of the utility supply alone.14No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2020] All ER (D) 21 (Jun) [2020] UKUT 163 (LC) Any obligation to pay a service charge must be founded on the terms that the parties have expressly agreed and recorded in writing. Agreements must be read and understood in their proper context, as they would be understood by any objective reader of the lease who was aware of the circumstances when the lease was entered into.15Westleigh Properties v Grimes [2014] UKUT 213 (LC) The cost of providing services may include the cost of administration and overheads but the lease must be worded appropriately to allow this.16Waverley BC v Arya [2013] UKUT 501 (LC) The fact that a management company undertakes administrative work in paying an electricity bill for common parts does not mean that a management fee is recoverable unless management fees are expressly stated as recoverable in the lease. Ofgem guidance on resale may be considered in proceedings. The effect of Ofgem guidance is that the unit rate payable may not exceed the rate paid by the reseller. In a dispute over the rate of consumption, the Leasehold Valuation Tribunal may determine the figure to be applied.17No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2020] All ER (D) 21 (Jun) In England, it may be worth investigating if the management company or person exercising management functions in respect of residential property adheres to the standards set out in the Service Charge Residential Management Code published by the Royal Institution of Chartered Surveyors.18Royal Institution of Chartered Surveyors, Service Charge Residential Management Code 2016, 3rd Edition, available at Failure to comply with any provision of any approved code does not of itself render any person liable to any proceedings, but in any proceedings, the codes of practice shall be admissible as evidence and any provision that appears to be relevant to any question arising in the proceedings is taken into account. In the case of service charges applied for caravan pitches, electricity charges are not recoverable unless expressly mentioned in the agreement for the pitch.19Sch 1 para 29 Mobile Homes Act 1983; Britannia Crest v Bamborough and Another [2016] UKUT 144 Costs incurred in maintaining energy supplies and other utilities may be restricted and recoverable only as part of a basic pitch fee.20Greenwood and another v Hardman and Partners [2017] EWCA 57
Changes in heating systems and buildings
Service charges should relate to services actually provided. Where there has been a radical change or alteration in the heating system (eg, a new system or a change in the building), the courts or tribunal may intervene and determine whether an original term in a lease requiring payment of a service should still apply. Where there has been a substantial change, the court or tribunal may require a different method of calculation once the change has taken place. Among the factors considered are the circumstances in which the contract was made and whether it applies to the new situation and what is ’fair and reasonable’ in the new situation.21Pole Properties v Feinberg (1981) 43 P&CR 121 CA applying Staffordshire Area Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387 Costs incurred in installing energy efficiency or carbon reduction measures that are paid or contributed to by the energy efficiency schemes or obtained from power companies should not be recoverable as part of service charges. Where costs are paid by a third party, the rule against double recovery of sums from tenants should be applied.22s20A LTA 1985 Where only some properties benefit from measures, service charge costs should not be apportioned to those tenants not affected.23Sheffield City Council v Oliver [2017] EWCA Civ 225 Where a third party has paid a landlord (eg, by way of an insurance payment or compensation for damages),24Craighead v Homes for Islington [2010] UKUT 47; Edozie v Barnet Homes [2015] 348 (LC) it may be possible to argue that a credit on a service charge should be made to you. Seek specialist advice if you think this applies to you. The costs of a landlord for employing solicitors to recover arrears for fuel or services charges from other lessees are not recoverable unless there is a clear and unambiguous clause allowing this.25Sella House Ltd v Mears (1989) 21 HLR 147; [1989] EGLR 65, CA
Access to information
You have the right to require your landlord to provide information; your request must be in writing. Your landlord must provide a written summary of costs incurred over 12-month periods and must comply within six months of your request.26s21 LTA 1985 as amended by Sch 12 Housing and Regeneration Act 2008; Housing and Regeneration Act 2008 (Commencement No 2 and Transitory Provisions) Order 2008 No.3068 If the service charges are payable by tenants of more than four dwellings together, the summary of costs must be provided by a qualified accountant.27s21(6) LTA 1985 This is aimed mostly at tenants such as those in mansion blocks, but it also applies if you live in a house in multiple occupation.28s38 LTA 1985; ‘dwelling’ is defined as a building or part of a building occupied as a separate dwelling. Provided the occupants of a house in multiple occupation are tenants with exclusive occupation of at least a room, their landlord would have to provide certified accounts. Within six months of receiving the summary of costs, you can require your landlord to allow you to inspect accounts and receipts. You can also make copies of any documents at a reasonable charge.29s22 LTA 1985 This is particularly useful if you suspect you are being overcharged. It may be more effective to exercise these rights through a tenants’ association. If members’ tenancies require them to contribute to the same costs, a tenants’ association can apply to the landlord to become a ‘recognised tenants’ association’.30s29 LTA 1985 If the landlord does not agree to this, the association can apply to the local rent assessment committee for a certificate requiring the landlord to recognise it. It can then exercise the rights to information on behalf of its members.
Challenging a service charge
Your right to challenge should be included with the notice of your service charge.31ss21A and 21B(1) LTA 1985 An application may be made for a determination whether a service charge is payable and, if it is, as to: 32s27A LTA 1985 •the person who should pay it; and
•the person to whom it should be paid; and
•the amount which is payable; and
•the date at or by which it should be paid; and
•the manner in which it is paid.
If you think service charges should not be payable, apply to the First-tier Tribunal (Property Chamber) in England or Residential Property Tribunal Wales to rule on these questions.33s19(2A) and (2B) LTA 1985 You must complete an application form and send it to the tribunal with the relevant fee and a copy of the lease. The tribunal may transfer the case to the court if involves complex matters of law. For more details and how to apply:
•in England, refer to guidance leaflet T541 available at gov.uk;
•in Wales, refer to guidance leaflet LVT-G2 available from .
It is best to seek advice before commencing an application. There are fees involved in some, but not all, applications. If you receive certain means-tested benefits, you can apply to have the fees waived using Form EX160 from Her Majesty’s Courts and Tribunals Service.34 It may be possible to negotiate with the landlord after making an application. A landlord may agree to reduce the charges before going as far as the tribunal hearing.
County Court proceedings
The County Court has the power to make declarations,35s19(4) LTA 1985 but you are normally expected to use the First-tier Tribunal. Orders of the tribunal can be enforced through the County Court, which also has the power to transfer proceedings to the First-tier Tribunal where a question within the jurisdiction of the tribunal arises.36ss112 and 176 Commonhold and Leasehold Reform Act 2002 Both the Court and the First-tier Tribunal have powers to deal with litigation costs incurred in proceedings or subsequent to the transfer but only the County Court can reduce or extinguish costs incurred in the County Court.37Sch 11 para 5A Commonhold and Leasehold Reform Act 2002 This is a matter that the court should take into consideration when deciding whether or not to ask for or agree a transfer.