02.03.11: Service charges
What rights do tenants of long leases have when their landlord decides that major works need to be carried out on their block of flats?
This question was examined in a recent court of appeal case. The decision proved a salutary and expensive lesson for the landlord and represented a considerable windfall for the tenants. More..
The property concerned was a block of shops and flats called Queens Mansions in Muswell Hill. There were long leases of five of the flats and these all provided for the payment of service charges.
The leases were fairly typical. Even though they were for 99 years and the tenants therefore effectively owned the block, it was the landlord who decided how, when and by whom and at what cost such repair work was done. He actually covenanted in the lease to repair and maintain the block but the tenants in turn covenanted to meet the cost through a service charge.
In other words, if the situation had been governed by the terms of the lease alone, the landlord would have been able to decide how to spend his tenants' money with little control or basis for complaint by the tenants.
But in 2003, Parliament enacted legislation to regulate service charges and strengthen the position of long leaseholders like these.
Landlords must now follow a three stage consultation process so that tenants are fully informed of the intention to carry out the works, the extent of the works, the likely cost by reference to at least two estimates and which contractor the landlords have ultimately chosen to do the job.
At first the residents of Queens Mansions were only shown one of the priced specifications. By the time they were given the opportunity to see the other priced tenders, the landlord had already let the contract to one of the contractors.
The landlord was unable to persuade the court to dispense with the consultation procedure. Dispensation would only be allowed in certain exceptional circumstances and this was not one of them. As a consequence, the landlord ended up footing a bill for some £270,000 and the tenants' liability was the maximum laid down by Parliament, namely £250 each (or a total of £1,250).
The financial consequences for the landlord were irrelevant so far as the court was concerned. What mattered was that the tenants had suffered significant prejudice because they had been deprived of the opportunity given them by Parliament to consult and make representations on the different tenders.
So landlords must beware. They must follow the various procedures carefully to ensure maximum recovery of the expenses they incur or else face the prospect of meeting them out of their own pockets.
For more information contact our Residential Property or Litigation and Dispute Resolution departments.
This article should not be taken as a full statement of the law. It should be regarded purely as guidance and is no substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Wiseman Lee LLP. © Wiseman Lee LLP 2011.