Late Penalty Fees

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    Late Penalty Fees

    Hi all

    I'm aware that this is common issue and I have indeed read through some existing (rather old) posts but given the ambiguity around 'reasonable' charges, I hope you don't mind me raising this issue again.

    I'm a leaseholder and I've been issued with two £60 late penalty fees totally £120 for an underpayment of £127 for the service charge. I am not disputing per se the reason behind the charges but rather the reasonableness of the charges itself. I do acknowledge that the service charge was issued with all the right legal protocols.

    The reason for a shortfall in service charge is that I did set up a standing order but the management company has recently been increasing the service charge every six months and my standing order no longer matches (or can keep up!) with the new amounts. I wanted to question the whether these charges can indeed be considered reasonable given that it seems disproportionate to the shortfall. I did not have sight of the letters informing me of these penalty charges as they were sent by post even though I had opted to go paperless. Their explanation is that going paperless excludes correspondence for late payment (which in my opinion is counterproductive).

    The management company is unwilling to waive these charges and I understand that applying to a FTT is slightly more expensive that the charge itself - this I wouldn't necessarily mind if I had a good chance of winning; I would rather pay the fee to the FTT than to the management company.

    I asked the management company to provide an explanation of how they reached the figures and they said:

    1. Acknowledgement and review of initial invoice, setting up additional letters. – This involves receiving payment requests from our internal department and setting up initial reports to start
    monitoring any debt on site.
    2. Up-to-date reports run. – This involves initial reports being run and reviewing accounts for any disputes or payments, reviewing debt and appropriate actions required.
    3. Issue of letter(s) postage and follow up work on file updates. – This is following on from point 1and 2 where reminder letters are to be issued (covering postage and machinery) in respect of
    outstanding sums.
    4. Handling incoming telephone calls/emails and letters. – The administration cost also covers our time during telephone calls, attending to letters, e-mails and faxes, and the costs incurred
    therein.
    5. Supervision in relation to outgoing correspondence and Client Updates
    6. In addition the costs go towards the complete infrastructure required to run a large credit control function.

    I was wondering whether anyone had any advice on whether £120 constitutes reasonable and whether it is likely I can successfully challenge these charges?

    Many thanks in advance.

    #2
    What is the structure? Who is charging you, a management company or an agent?
    What does your lease say? When are the service charges payable? Are you receiving budgets? Why are the amounts increasing half yearly, they do not normally change more frequently than annually?
    Have you challenged any of the service charges? Have you ever agreed a monthly amount with the company or the agent? Have you been notified that the monthly sums are insuffiicient?
    Does the lease allow administration charges to be charged to you?
    Is there a managing agent and are you being charged a management fee? If so, ask to see the management agreement because many of the items described should be included within that charge.
    The administration charges appear to be unreasonable subject to your replies. If you are successful, you should be able to recover the Tribunal fees.

    Comment


      #3
      Thanks for such a swift response. I'll do my best to answer with the knowledge I have to hand at this moment but if helpful to dig out more details, please do let me know.

      I'm not entirely sure what the difference between an managing company and an agent is but in their emails do state that they are a managing agent.

      The managing agent's email includes the following:

      Your lease stipulates your charges are to be billed quarterly in advance. This means they are always due to be cleared by the first date of each billing period, or 30 days from the date of the payment request, (whichever is longer). It is this legal document, signed by yourself, which we have to abide by in the collection of.

      If you fail to pay service charges on or before the due dates stipulated in your Lease, then by definition, you are paying in arrears. If your Lease requires that full payment be made in advance of the periodic dates, then anything past this date is overdue and subject to recovery.

      The service charges are collected in advance are emailed to you, we would serve the demands 30 days before due date

      The account entered the arrears process and letters were served due to an underpayment of £127.00. The fees levied have been done so in line with the procedure and are justified."
      So I pay quarterly and on this instance as I did not check my standing order, I underpaid and received no correspondence via email informing me of this underpayment. As mentioned, they say they sent a letter by post which I have not had sight of as I am not currently at the property due to COVID and I had requested to go paperless so wasn't expecting any correspondence by post.

      We do receive annual budgets but admittedly I've never paid them any attention and have never challenged them.

      Midway through last year additional costs were added apparently due to some additional works:

      The consultation period has now expired, and we would like to move forward with the works.

      Unfortunately, we do not have the funding in place to provide a contractor with an instruction at this point in time. In addition to this, the terms of your Lease do not permit supplementary demands to be issued outside of any balancing charges.

      With the above in mind, we have been liaising with your Freeholder and have obtained approval to reissue the budget for the 2020 period with the works costs forming part of a revised reserve total. In doing this, once all residents pay their service charge for the 2020 period we will have the funding in hand to be able to pay for the back stairwell repairs.
      So this I suppose would explain the mid-year increase, followed by the normal annual increase.

      Since it is a managing agent, I suppose there must be management fee but truthfully I've just been blindly paying the charges without ever reviewing them. My service charge has risen almost 50% in the past 2-3 years. Leaseholders have sadly struggled to meet the numbers threshold for the right to manage.

      I would also just like to note, that in the past where there was a shortfall for a quarterly payment, the balance was brought forward to the following quarter. This is the first time since I purchased this flat that I have been given a late penalty fee.

      Useful to know I should ask for the management agreement. I'm aiming to go to the Land Registry to get a copy of the lease but it was also my understanding if the lease does not state that charges can be applied, they can still be applied. Another part of the managing agent's email:

      The Lease is a contract between the Freeholder & the Leaseholder. It does however provide that a Freeholder can appoint a managing agent, should they see fit. In doing so, the processes and procedures that we have in place to ensure that we are able to uphold the requirements of our Client (the Freeholder), can then be utilised.

      When it comes to late or non-payment of Service Charge / Ground Rent, we have our arrears process in place to ensure we collect funds in the most efficient way possible. Our processes are closely audited by our governing bodies and therefore deemed fit for purpose, however the Commonhold & Leasehold Reform Act (2002), deems that administration fees can be applied and considered payable on the assumption that they are deemed 'reasonable'.

      The fact that we have our processes audited, and that the Late payment fees are intended to cover our costs, ensures that our fees are 'reasonable'. We can provide the attached to demonstrate areas in which costs are incurred, and case law where admin fees higher than our own have been deemed to have been found fair.
      Thanks so much for your advice. And sorry for the super long reply.

      Comment


        #4
        Thanks, it is beginning to make some sense, you appear to have a freeholder who has appointed an agent to collect service charges.
        Yes, you should obtain a copy of your lease and check it carefully to see when service charges are payable.
        You should also study the budget to see precisely what you are being asked to contribute towards.
        Administration charges are not payable unless they are allowed in the lease. From your quotes, it does not appear that they are payable.
        Before your next quarterly payment, you should inform the agent that you do not accept the administration charges and your payments are to be applied against service charges only.
        It would be better if you stopped the standing order and pay in future by cheque with a covering letter that the cheque may only be accepted as payment of service charge and you keep a copy of the letter, your cheque and proof of posting.
        Presumably, the service charges for 2021 should reduce to a normal level. When you have caught up with the service charge payments, you should apply to the FTT for the administration charges to be removed. By then, you should have been able to review the service charges and ensured that they are reasonable.

        Comment


          #5
          Hello again

          Wondering if you (or anyone) would be able to clarify the below for me. I'm afraid the legal jargon has gone over my head. Basically, the clause below is in my lease and I wonder if this allows for administration charges to be applied. If so, then I would challenge the 'reasonableness' of the admin charges rather than the legality of them being applied.

          To pay all expenses including solicitors' costs and surveyors' fees reasonably and properly, incurred by the Landlord incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under Sections 146 or 147 of that Act or of proceedings on account of arrears of Rent and/or Service Charge and/or Structural Service Charge for forfeiture of this Underlease or for the recovery or attempted recovery of those arrears notwithstanding forfeiture is avoided otherwise than by relief granted by the Court and to pay all expenses including solicitors' costs and disbursements and surveyors' fees reasonably and properly incurred by the Landlord of and incidental to the service of notices and schedules relating to defects or wants of repair decoration replacement or renewal arising before the expiration or sooner determination of the Term whether the notice be served during or after the expiration or sooner determination of the Term
          Also, are the management agent obliged to provide the management agreement along with the freeholder's details (for when I raise the issue with the FTT)?

          Thanks very much.

          Comment


            #6
            Assuming that they have not instructed solicitors, they have no grounds for raising an administration charge. Your argument would be that the service is included within the management fee. It would be difficult for the management company to counter that argument without producing the management agreement but you may ask the Tribunal to issue directions requiring the agreement to be produced.

            Comment

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