County Court claim interest claimed on unpaid service charge/dispute

[Stacker]

Hi
I hope you are all well. If the landlord puts in a claim for interest on a service charge dispute who benefits from the interest if its a limited company? As I thought the landlord could not benefit for the lease?

[AndrewDod]

It would have to go into the service charge account (which should earn interest anyway). FH can't take it - it most certainly is not their money.
Any works will cost more due to the delay.

[Macromia]

It would have to go into the service charge account (which should earn interest anyway).

Hypothetically, service charge accounts should earn interest, but currently the amount shouldn't be anything worth worrying about (unless there is a reserve/sinking account) because of low interest rates.
In many normal situations, money shouldn't remain in service charge accounts long enough to earn interest - especially if the service charges are collected quarterly, or monthly.

I completely agree with the answer to the question though. Any interest should go into the service charge account, and therefore benefits the leaseholders.

[Stacker]

Hey my lease says to pay the annual rent on the 21st June in advance with no deductions, this has not been happening, they have been asking for quarterly demands and not the full amount on a different date? Would this be an unagreed variation of the lease?

[Section20z]

No. They can ask for the rent whenever they like as long as valid s166 notice served. Without that nothing is payable.

[Macromia]

Hey my lease says to pay the annual rent on the 21st June in advance with no deductions...

But what does the lease say about service charges?

Does the lease say that service charges are "reserved as rent"?
Is it clear that the reference to the 21st June includes service charges and not just found rent?
Are there any specific mentions of when service charges should be paid, rather than rent?
Does the lease contain any clauses that would allow additional service charge payments to be demanded if the amount initially demanded was insufficient for the year?

Regardless, I doubt that you will get anywhere with this, as long as the dates that payment is being demanded is after 21st June.
21st June will be seen as the earliest date that service charges for the year can be demanded. If payment is not demanded until later dates, this will likely be considered advantageous to leaseholders (especially if the budget for the year is provided before 21st June).
There is nothing to stop leaseholders paying whatever they expect the yearly charges will be on 21st June, even if this is more than has been demanded. If the freeholder refuses this payment (and the leaseholder can prove this) they will have virtually no chance of later claiming interest on any payment up to the amount that was sent.



Regarding the comment from Section 20z, a S166 notice applies to ground rent, not service charges.

[Stacker]

Thank you Macromia ...the annual rent means the insurance rent to be paid in advance on the 21st June, it is to be paid without any deductions whatsoever on this date on the basis the landlord insures the building ..they have issued a partial demand in July for service charges for part of the insurance, an accountancy fee and the rest of the service charge demand for the reserve with no explanation or item of expenditure stated whatsoever for what the reserve monies are for. Also there is no wording in lease for any reserve - there is for a sinking fund however they need to state what the expenditure is for and be transparent ( RICS ) and it needs to be reasonable sections 18/19 L&T Act 1985

[Macromia]

...the annual rent means the insurance rent to be paid in advance on the 21st June, it is to be paid without any deductions whatsoever on this date on the basis the landlord insures the building ..

You are clearly quoting from, or more likely paraphrasing, lease clauses that refer to the obligations of leaseholders.
Current legislation means that leaseholders do not need to pay anything for service charges or 'rent' until this has been properly demanded - regardless of what the lease says. Legislation also allows freeholders to demand service charge payments at any point up to 18 months after the date that the costs were incurred (or even later if they notify the leaseholder properly within 18 months) - as long as something in the lease allows payments to be collected, and the lease doesn't say that payments can only be collected on a specific date, or dates.

Also there is no wording in lease for any reserve - there is for a sinking fund however they need to state what the expenditure is for and be transparent ( RICS ) and it needs to be reasonable sections 18/19 L&T Act 1985

The RICS service charge guide mostly describes recommended best practice, not legal requirements.
The landlord and tenant act sections that you quote only really come into play if demands are legally challenged - and I suspect that you might be surprised at how easy it is for freeholders to argue that costs are "reasonable".

Leaseholders should tell you why they are collecting money for a reserve/sinking fund at the time that they demand payment, or before, but there isn't a great deal that you can do about it if they don't (other than ask them to explain, and/or take them to a tribunal and argue that the costs are unreasonable).

[Gordon999]

In many leases , the service charge payment is due at the start of the service charge year ( often on 25th Mar or 21st June for you ) .

But many leaseholders have difficulty making one large lump payment and require to make several smaller payments. For our block, the management company allows some leaseholders to pay by 10 monthly payments by bank standing order.

Separate payment for buildings insurance can be required "in advance" which is normal for insurance premiums which is paid at the start of cover.

[Stacker]

No. They can ask for the rent whenever they like as long as valid s166 notice served. Without that nothing is payable.

What is this s166 notice....I am taking about the insurance rent NOT the ground rent?

[Stacker]

Our year end in the lease states December 31st so the start of the year would be 01st Jan they have now changed the service charge year to start July 2020 when the annual insurance rent premium was due on the 21st June

[Stacker]

Macromia,

There is provision in the lease for "a sinking fund", they are calling it the reserve however they have not being paying into this so now there are no funds, Tribunal cases and RICS state the funding must be transparent, landlord in breach of covenant and major expense coming up whilst the buggers who did not pay have gone now.

[Gordon999]

The service charge arrears follow the leasehold flat.

If the previous leaseholder has left the service charge in arrears, the next leaseholder will take on the arrears and be required to pay the outstanding sum.

Usually the buyer's solicitor will make enquiries to ascertain the arrears for ground rent and service charge and make provision for arrears to be withheld in the completion statement .

[Section20z]

Indeed, but the new Lessee can still contest any amounts not lawfully charged or rent demanded without s166

[Stacker]

Thank you for your help guys...firstly

1. The claimant landlord has made a service charge demand dated 31st August 2020, the demand is very brief without any details of those charges and quarterly payment of service charges are not expressly provided for.
2. The claimant landlord is obligated under the lease to insure the building in accordance with the provisions in the lease, by paragraph 3 the lease makes clear provision paying yearly during the said term First the Annual Rent in advance on the twenty first day of June in every year free of all deductions whatsoever after the expenditure has been incurred by the landlord.
3. There is no requirement for me to pay any third party or insurance broker.
4. That the claimant landlord is obligated to insure the communal parts of the building and indeed the building as a whole
5. The claim for interest has not been adjudicated as these proceedings are in process and no award of interest under the County Court Act has been made.

Recovery of interest on service charges. There is no mechanism in the lease for charging interest on unpaid service charges or for there to be a profit on a service charge, the service charge clauses only refer to the recovery of costs relating to monies actually expended on the maintenance repair and general upkeep of the building.