Service charges and leasehold landlords
- Many buy-to-let properties are leasehold flats, the landlord (as leaseholder) is liable to pay service charges to the freeholder or management company. These charges can represent a significant cost and are a common source of disputes
- Service charges must be 'reasonably incurred' and services must be of a 'reasonable standard', this is the statutory test under the Landlord and Tenant Act 1985, section 19
- A landlord (as leaseholder) can challenge service charges through the First-tier Tribunal (Property Chamber), the tribunal determines whether charges are reasonable. This is the primary dispute resolution route
- Service charges for items not covered by the lease cannot be demanded, always read the service charge provisions in the lease carefully when purchasing a leasehold property
- Administration charges (charges for consents, late payment, breach of covenant) are subject to a separate reasonableness test under the Commonhold and Leasehold Reform Act 2002 and can also be challenged at the tribunal
Major works, Section 20 consultation
- If the freeholder or management company proposes works that will cost any individual leaseholder more than �250, they must follow the Section 20 consultation procedure under the Landlord and Tenant Act 1985
- Failure to consult properly limits the amount any individual leaseholder can be charged to �250 for the works, this is an important protection against large unexpected service charge demands
- The Section 20 procedure involves: a notice of intention describing the proposed works; a consultation period (at least 30 days); a notice of estimates (at least 2 contractors tendered); a second consultation period; and an opportunity for leaseholders to nominate their own contractor
- If you receive a major works demand and were not properly consulted, apply to the tribunal for a determination that the charge is not payable above the �250 cap. The freeholder must prove compliance
- Long-term agreements (contracts for 12+ months): also subject to a consultation requirement if the cost exceeds �100 per year per leaseholder, e.g. long-term maintenance contracts, lift service contracts
Challenging unreasonable service charges at the tribunal
- Application: apply online to the First-tier Tribunal (Property Chamber) using Form LET1 (leasehold disputes) or apply on the tribunal's online portal. There is a small application fee
- What to include in your application: the service charge demands you are challenging, the specific items you dispute as unreasonable, any evidence you have gathered (comparable costs, evidence of poor quality, Section 20 non-compliance)
- Burden of proof: the burden is on the freeholder to prove that service charges were reasonably incurred and services were of a reasonable standard, you do not have to prove they were unreasonable
- Common successful challenges: management fees above market rates; works carried out to an unnecessarily high specification; building insurance arranged with connected parties at above-market premiums; charges for services not provided or not of reasonable standard
- Costs: the tribunal has discretion to award costs, but cost awards are unusual in service charge cases, each party usually bears its own costs. The risk of an adverse costs order is low, making tribunal applications accessible for leaseholders
Right to manage and purchasing the freehold
- Right to Manage (RTM): a group of leaseholders can collectively exercise the Right to Manage under the Commonhold and Leasehold Reform Act 2002, taking over management of the building without purchasing the freehold. This removes the freeholder's control over service charges
- Collective enfranchisement: qualifying leaseholders can collectively purchase the freehold under the Leasehold Reform, Housing and Urban Development Act 1993. This eliminates service charges entirely (replaced by common management costs) and removes the freeholder
- Leasehold Reform (Ground Rent) Act 2022: for new leases granted after 30 June 2022, ground rent is prohibited (must be zero or a peppercorn). For existing leases, ground rent remains but can be challenged under the Competition and Markets Authority framework
- Leasehold and Freehold Reform Act 2024: introduces significant reforms including easier lease extensions, abolition of marriage value (for leases under 80 years), and improvements to the RTM and enfranchisement processes, most provisions expected to come into force in 2025�2026
- Practical advice: if you are experiencing persistent service charge problems, join the local residents' management company or leaseholders' association if one exists, collective action is more effective than individual challenges
Service charge disputes, practical steps
- Request a service charge summary of accounts: under the Landlord and Tenant Act 1985, you are entitled to a written summary of costs and to inspect supporting accounts and receipts within 6 months of the year end
- Write to the freeholder or managing agent with a detailed query before applying to the tribunal, many disputes are resolved at this stage when the managing agent realises their position is weak
- Withhold payment strategically: you can pay service charges 'under protest' while challenging them at the tribunal, this preserves your position without giving the freeholder grounds to forfeit the lease for non-payment
- Leasehold Advisory Service (LEASE): provides free initial advice on service charge disputes and leasehold matters. Use their helpline or online resources before committing to a tribunal application
- Forfeiture risk: a freeholder can theoretically forfeit a lease for non-payment of service charges, but only with court approval, courts rarely grant forfeiture for service charge disputes. However, to avoid this risk, pay under protest rather than refusing to pay altogether