Service charges being levied, but no provision in Lease

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    Service charges being levied, but no provision in Lease


    I have a flat in a small block of four flats. The lease (originally from 1989) makes provision for me to pay Rent, a proportionate part (25%) of insurance arranged by landlord; and a proportionate part of the cost of all costs for maintenance and upkeep of the car park area, roof, and foundations.

    There is no other reference in the lease to any other charges / Service Charges. The only other obligation I can see is (slightly abridged):
    “To pay all existing and future rates taxes assessments charges impositions and outgoings whatsoever now or hereafter assessed charged upon the maisonette … provided the tenant shall be liable to pay 25%” – but my understanding this relates to rates, utilities etc, not maintenance or services from freeholder?

    For the last 6 years I have paid the Rent/Insurance and no other charges. In 2018 the freeholder appointed a new Management company who subsequently invoiced me for a one-quarter share of the cost of a “Health & Safety Fire Risk Assessment” and an “Administration Fee to cover the cost of our time and resources in administering your account along with facilitation of the H&S Risk Assessment as well as ongoing management going forward”. The charge is c.£250. No services or maintenance/repairs etc have been carried out.

    I have exchanged letters with the management company for c.9 months, asking for more information and pointing out that I don’t see any provision in the lease for these charges. My letters have been ignored and I continue to receive escalating demands for payment – the latest “Final Reminder” threatening further Debt Referral/recovery fees and action if I do not pay within 14 days. Although initially confident of my position, I’m wavering a little faced with potential escalating charges so not sure about next steps and would appreciate any advice

    I’ve tried to make this a simple summary - happy to share more detail if needed

    #2
    The first paragraph describes service charges exactly. You have various rights in terms of service charges, but there is no suggestion that
    "Service charges being levied, but no provision in Lease". Getting H&S assessments is part and parcel of "maintenance and upkeep of the car park area, roof, and foundations". The lease will almost certainly say that professional fees and agents are allowable too.

    On the other hand it is possible that you have a highly unusual lease which allows only for actual costs of workman's labour and materials and nothing else. For example if they have to get surveyor to decide what works have to be carried out, it would be a highly unusual lease that does not allow recover of the surveyor fee, the cost of S20 consultation.....

    Comment


      #3
      I think you mean managing agent, not management company.

      Health and safety is an area where most leases are defective. Although people don't make this explicit, I think landlords usually proceed on the basis that the lease would be ruled defective and they could force changes to it, in which case the leaseholders would end up with various conveyancing costs. If you have never been charged for these before, it is likely that the freeholder was committing a criminal offence. I think leaseholders often unsuccessfully challenge health and safety costs.

      A lease that doesn't provide for the reasonable remuneration of a managing agent is more of a problem. I'm not sure that would be classed as defective, as the freeholder could manage it themselves.

      Unless your ground rent is very high, it is unlikely that any freeholder, operating on a commercial basis, would be able to afford to run the property without collecting a managing agent fee of that sort of amount, but I'm not sure that would meet the test of failing to make adequate provision for recovery of costs.

      So my feeling is that the FTT would accept the health and safety costs, and you may end up having to pay towards a lease variation, but their response to the managing agent costs is less easy to predict.

      Comment


        #4
        Thanks both

        AndrewDod
        the lease states "a proportionate part of the cost of all costs for maintenance and upkeep of the car park area, roof, and foundations" - the issue as I see it here is that no work was necessary or performed (I'm not even certain that the H&S assessment was actually performed as no copy has been provided when I've requested).

        Lease has no mention of professional fees, the only mention of 'Agents' is in context of allowing the Landlord's Agents to gain access for repairs

        leaseholder64
        Yes correct Managing Agent - my mistake.
        Ground rent is very low (£30 p.a.) so I agree the lease does not appear to provide reasonable remuneration of managing agent - but of course this doesn't change what is written in the lease/contract. Apart from the car park, roof and foundations there are no other communal areas - each flat has it's own entrance etc.. hence I would argue the managing agent can be reasonably remunerated through passing on costs in relation to these specific areas, but there shouldn't be any other costs.

        The item that is driving most of the current charge (ie. "Administration Fee to cover the cost of our time and resources in administering your account along with facilitation of the H&S Risk Assessment as well as ongoing management going forward") does not appear to be "maintenance and upkeep of the car park area, roof, and foundations".

        Re your last para - do you mean a lease variation in relation to the H&S costs?



        Comment


          #5
          I think, if you forced the issue, the freeholder would need to seek a lease variations to permit the recovery of the costs of complying with health and safety legislation. My feeling would be that, if you challenged reasonableness, it would go to the FTT and the freeholder would add the lease variation request as an effective counter-claim.

          Given you have only four units, I don't think you are in London. In London, 30 units ends up with around £200 plus VAT. With four units, you don't have economies of scale. As such I think that the managing agent's standing charge is pretty much market price for a lower cost area. Some people reckon is difficult to get managing agents to even quote for such small developments.

          DIY fire and safety risk assessments are possible, but I'd only advise it if you have a very simple situation, and, for example, cars are parked well away from building windows.

          Comment


            #6
            Managment costs can only be recovered if the lease so provides.

            Comment


              #7
              Location is north-east England.


              Trying to summarise from the above replies, it appears:

              1. I should pay the share of the H&S/Fire assessment on the basis the lease would be ruled defective and/or the activity is covered by the "maintenance and upkeep of car park....etc" item. (c.£300 shared across four flats)

              2. This still leaves the separately itemised "Administration Fee to cover the cost of our time and resources in administering your account along with facilitation of the H&S Risk Assessment as well as ongoing management going forward" (c.£600 shared across four flats)

              leaseholder1964 - I think you're saying these costs are reasonable, but difficult to predict if FTT would find them payable or not - fair summary?

              Lawcruncher - if I take the position you've described - ie the admin/management costs are not chargeable as not covered explicitly in lease, and assuming the managing agent will continue to ignore any letters I send, do I just sit tight and wait to see what action they take to recover the 'debt' (with risk of escalating legal costs) or should I be taking some other proactive action?

              Comment


                #8
                The only pro-active action you can take is to apply to the FTT for a ruling as to whether the charge is payable. If you are taken to court, you should be asking for a transfer to the FTT, anyway.

                I think though, that you should consider the consequences of the freeholder not being able to a pay for management; you might end up having to buy the freehold off them, and having to manage it yourself, out of your own pocket.

                Comment


                  #9
                  Originally posted by leaseholder64 View Post
                  I think though, that you should consider the consequences of the freeholder not being able to a pay for management; you might end up having to buy the freehold off them, and having to manage it yourself, out of your own pocket.
                  Why is that?

                  If the freeholder bought something (a set of contracts) that obliges them to pay for something (maintenance of their building), without giving them a route to recovering the money then they have to pay it out of their own pocket until reversion. They still have that obligation from which they cannot escape (and that fact would or should,have been reflected in the price they paid) - it is not up to the lessees to provide them with an escape, and there is no legal basis for that. Freeholders are perfectly entitled to purchase a thing that will not provide a profit or advantage until reversion.

                  Anything else would be a gross abuse.

                  Comment


                    #10
                    If the freeholder is a company, they can dissolve the company. In that case the OP might get the option of buying the freehold, but otherwise, it could end up bona vacantia or with one of the usual suspects. For it to end up with one of the usual suspects, there would need to be some other way of milking the leaseholders, that more than covered the management costs. However, if it was attractive to a usual suspect, the OP might need to exercise the right of first refusal even for a voluntary sale, to avoid that happening.

                    If it goes bona vacantia, there will be no repairs and no insurance.

                    If the freehold is owned in a personal capacity and has no market value, one still has to consider whether the freeholder can sustain the loss, and that they will be incentivised to use the manager that is cheapest, so may mean the one that skimps, makes money from commissions, or from legal charges for non-payment. They will also be incentivised to do as little work as possible. Some freeholders might go bankrupt, with similar consequences to dissolving a company.

                    In that case, the leaseholders may have to exercise right to manage, but with no means of paying for the RTM company or for any sort of professional services.

                    Comment


                      #11
                      To clarify, the lease does not oblige the freeholder/agent to pay for maintenance of the building - there is adequate provision for this within the lease for these costs to be shared across the four flats. The lease does not however provide for the freeholder/agent to charge for the H&S Risk Assessment (unless this is considered part of maintenance & upkeep of the car park etc) or the costs of their time and resuorces in 'administering my account'

                      Comment


                        #12
                        Originally posted by David1964 View Post
                        To clarify, the lease does not oblige the freeholder/agent to pay for maintenance of the building - there is adequate provision for this within the lease for these costs to be shared across the four flats. The lease does not however provide for the freeholder/agent to charge for the H&S Risk Assessment (unless this is considered part of maintenance & upkeep of the car park etc) or the costs of their time and resuorces in 'administering my account'
                        Well they would not be able to get any work done without the H&S risk assessment (which would tell builders whether they are dealing with asbestos and other stuff). Likewise they would not get the insurance they are obliged to get.

                        Comment


                          #13
                          I think your best course of action would be to make an offer to buy out the freehold. It seems to me that the freeholder is no longer able to manage it themselves, and is unable to sell it.

                          They may also be open to right to manage, and there is talk of changing the law to make taking the cost of running an RTM a legitimate expense, in spite of the lease, although that probably doesn't extend to using an external managing agent.

                          The disadvantage with RTM without an agent is that you do have to keep up to date on the law, and in the longer term you are likely to find finding people willing to be directors difficult.

                          Comment


                            #14
                            Originally posted by leaseholder64 View Post
                            If the freeholder is a company, they can dissolve the company. In that case the OP might get the option of buying the freehold, but otherwise, it could end up bona vacantia or with one of the usual suspects. For it to end up with one of the usual suspects, there would need to be some other way of milking the leaseholders, that more than covered the management costs. However, if it was attractive to a usual suspect, the OP might need to exercise the right of first refusal even for a voluntary sale, to avoid that happening.

                            If it goes bona vacantia, there will be no repairs and no insurance.

                            If the freehold is owned in a personal capacity and has no market value, one still has to consider whether the freeholder can sustain the loss, and that they will be incentivised to use the manager that is cheapest, so may mean the one that skimps, makes money from commissions, or from legal charges for non-payment. They will also be incentivised to do as little work as possible. Some freeholders might go bankrupt, with similar consequences to dissolving a company.

                            In that case, the leaseholders may have to exercise right to manage, but with no means of paying for the RTM company or for any sort of professional services.
                            Sorry but I just can't accept that. For the FH, going backrupt would not be cost neutral -- they would get rid of a current liability but also lose reversionary rights. You want them to have it both ways having the cake and eating it - retain reversionary rights and getting rid of current obligations under the lease. This would almost epitomise the abuse that leasehold has become.

                            So yes they could do as you suggest in your first paragraph (basically throwing their asset away)
                            OR
                            they could obey their obligations in the lease

                            Comment


                              #15
                              Originally posted by AndrewDod View Post

                              Well they would not be able to get any work done without the H&S risk assessment (which would tell builders whether they are dealing with asbestos and other stuff). Likewise they would not get the insurance they are obliged to get.
                              But no work needs doing so why bother now? ...and the agent claims the risk assessment has been done, but nobody contacted me, nobody accessed property etc, so they wouldn’t know if asbestos was present. All they could have done is inspect external walls and car park (I’m sceptical that the assessment has even taken place)

                              Comment

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