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Legal Update: Landlords and Service Charges

There has been some good news for landlords following a ruling on service charges in December 2017.  This important decision affects intermediate landlords such as:

  • Individuals who own and rent flats and apartments
  • Residential property management companies
  • Anyone who rents a residential property they own to another and has to pay ground rent etc. to another company (referred to as the superior landlord)

Intermediate landlords are usually people or companies who own and rent out flats.  They are less common for those renting out houses as these are usually sold freehold.  If you as the landlord have to pay a service charge (e.g. ground rent, insurance etc.) to someone else, then you are an intermediate landlord and this ruling affects you.

This decision is with respect to section 20B(1) of the Landlord and Tenant Act, 1985.  This section imposes a time limit of 18 months on demanding payment of service charges.   For example, if you are producing a bill for service charges on 1st January 2018, you can only include those incurred after 1st July 2016.

Service charges relate to the general upkeep and running of the building including such items as:

  • General maintenance and repairs
  • Insurance of the building
  • Central heating, lighting and cleaning of common areas
  • Maintenance of lifts, car park etc. if provided
  • A porter where applicable etc.

These charges are made by the superior landlord against you, the intermediate landlord.  You then pass these charges onto your tenants.

The decision related to when the 18-month period started for intermediate landlords.  Did it start when:

  1. They were invoiced by the superior landlord OR
  2. The charge was incurred, i.e. the superior landlord paid the contractor, the insurance company etc.

In the case of the second option, if the superior landlord did not invoice you until 16 months after the cost was incurred then you would only have 2 months to pass this cost onto your tenants.

Fortunately, for intermediate landlords, the Upper Tribunal ruled that the 18-month period started when the superior landlord demanded payment rather than when the charge was incurred.

Full details of the case are included below.

If you are an intermediate landlord and are concerned about service charges, then please contact Andy Rudkin, Head of Dispute Resolution at Else Solicitors, on 01283 526239 or  Andy has considerable expertise in helping landlords and you can rest assured that his team will help you to recover any service charges you are owed and protect you from future issues.

The Case: The case was brought before the First-Tier Tribunal (Property Chamber) in 2016.  The First-Tier Tribunal (FTT) consists of several chambers and the property chamber deals with disputes over property and land.

The case involved an apartment block in Bristol which had been completed in 2008.  The superior landlord was Epic Trust and Westmark Lettings let and managed, through a separate Management Company, 29 leasehold flats.

Under the terms of the agreement, Epic was obliged to insure the development, to keep it in good condition and manage it in accordance with the principles of good estate management.  Epic was entitled to pass on the costs incurred doing so to Westmark who would then pass this service charge onto the Management Company who would ultimately demand payment from the tenants.

Epic and Westmark have been in dispute over this development for many years.  This, in part, led to a delay in service charges being invoiced to Westmark and subsequently the Management Company.  The upshot was that from 2011-2015 the Management Company made no demands for payment of service charges.  This was rectified on 30th November 2015 when the Management Company invoiced tenants for service charges incurred in the years from 2012-2015.

The tenants argued that they had no liability to pay service charges incurred before 31st May 2014 (18 months before they were invoiced) under the Landlord and Tenant Act.  Their case was upheld by the First-Tier Tribunal.

The Appeal: Westmark Lettings appealed this decision in the Upper Tribunal.  The Upper Tribunal is equivalent in status to the High Court and can set precedents and enforce its decisions.  It provides a way for parties to appeal decisions made in the First-Tier Tribunal.

Westmark argued that the 18-month period runs from when an invoice is received by each landlord in the chain rather than when the costs were initially incurred by the superior landlord.  This gives each landlord in the chain 18 months to pass on the incurred costs by invoicing the company or individual in the chain below them for service charges.

Their appeal was upheld by the Tribunal. In summing up, Martin Rodger QC said, “The dates on which costs were incurred for the purpose of the time limit was the date on which they were incurred by the Management Company when it received a demand from Westmark, and not when costs were incurred by Epic.”

The Impact: This decision makes it clear when the 18-month period starts for intermediate landlords, i.e. the date they are invoiced for them.

Andy Rudkin, Head of Dispute Resolution at Else Solicitors commented “This clarification is welcome news for intermediate landlords. Numerous intermediate landlords will now be able to invoice tenants for back service charges which they thought they were not entitled to due to a delay in invoicing by the superior landlord.  However, they must act quickly as the clock is ticking from the date they are invoiced. Equally, it is important that intermediate landlords do not accept service charges which were incurred more than 18 months before the date of the invoice.”