Sevice charge distribution

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    Sevice charge distribution

    Hello

    I wanted to ask about tenants repairs or items that are the landlord's (company owned and run by ourselves) responsibility.

    We live/"own" in a series of blocks of flats, 999-year lease, all equal shareholders and all paying equal service charge, or so I thought.

    Historically the flats have been poorly managed by the residents and the maintenance slipped meaning large sums have been spent on emergency patch-ups and inflated insurance premiums. Either through frustration or just misunderstanding the lease some residents have executed repairs/replacements themselves that should have been paid via the service charge, Replacing Carpets to the communal areas (on one floor/building), communal staircase balustrades (in one area) windows etc.

    I don't have a big issue with the above in terms of who paid what and if we owe or are owed monies but the question is now circulating. Would something such as this count as a service charge contribution given that the lease states words the effect all leaseholders need to pay their equal share.

    If the managing agent replaces the windows of one flat and this is billed to all and another replaces their own would this be a service charge imbalance contradicting the lease?

    To the best of my knowledge, no leaseholder has made alterations with a deed of variation, they have just gone ahead and done it.

    If a court were pressed, would you think that these "additional payments" by some could be brought into the service charge and partially refunded or is it just tough luck?

    Many thanks for any thoughts


    #2
    The outcome of something like this would likely depend on the circumstances preceding the leaseholder carrying out the work themselves, whether the replacements were 'like-for-like', whether the leaseholders argued that they are entitled to withhold service charge payments due to paying for repairs themselves, etc.

    Typically, leaseholders carrying out repairs/replacements that are actually the responsibility of the freeholder are likely to be in breach of their lease, and may become responsible for any costs that can be argued to be incurred as a result of their action (e.g. if the work is deemed to be substandard).

    However, a leaseholder is very likely to be able to successfully argue that the money they have spend on repairs that a freeholder should have carried out should be deducted from their share of service charge contributions. It will be even more likely that a tribunal/court will decide in favour of the leaseholder if something like this was before them if the leaseholder can show that they made the freeholder aware of the issue before they took their own action and gave the freeholder sufficient time to arrange for the work to be carried out (with more time allowed for less urgent repairs, less time for repairs that are genuinely needed for health & safety reasons or because delaying the repair will likely result in further damage/increased costs).

    Comment


      #3
      Originally posted by Silverdale View Post
      Hello
      If a court were pressed, would you think that these "additional payments" by some could be brought into the service charge and partially refunded or is it just tough luck?
      So, in summary of what I posted above, repairs paid for by individual leaseholders can be 'brought into the service charges' if they should have been carried out by the freeholder, with the leaseholder receiving credit for all, or some, of what they paid out - but any leaseholder taking matters into their own hands is taking a potential risk and can potential end up paying out additional costs in addition to not getting credit for the money spent on the repair.

      Comment


        #4
        In addition, the freeholder and the agent ought to have been aware that some of the works were being carried out especially to communal areas and the external parts of the building. Did they take any action to stop the works or contact any of the leaseholders to advise them of the correct procedure?

        Comment


          #5
          Thank you, that makes sense.

          I understand that neither the leaseholders nor freeholders really enforced the lease or lived by it, Despite a bit of a wild west approach, it seemed to be reasonably harmonious. However, a lack of preventative maintenance in the pat has bitten us now.

          For the most part new for old has been respected with reasonable regard for uniformity, there are cases by both landlord and tenant where the design has gone off-piste. I would be stunned if any leaseholder had written permission despite the lease being restrictive. I don't believe the freeholder prevented these works and the freeholder is "us" so lives on site. In fact, I think it was encouraged as I understand the freeholder was reluctant to pay. Is new for old essential?


          Only painting and window cleaning is listed as something that needs to happen at a time limit every 3 years and every month respectively. The rest is presumably just down to when it needs to be done which I appreciate is subjective.

          Whilst we "own" I understand we are tenants in the eye of the law., could I ask an opinion on when would it be expected that an item such as a carpet or window should be replaced?

          Could be

          i Average lifespan, with this it is at least preventative and proactive?
          ii When dangerous?
          iii When superseded such as should we expect double glazing or is single fine?
          iiii When visibly distressed?
          iiiii When new for old has not been adhered to by landlord, such as a crazy pattern carpet installed 10 years ago that now looks ridiculoius?

          How should maintenance frequency be interpreted, the court must have an interpretation as this must be a regular issue in service charge related issues?

          Comment


            #6
            The relaxed approach of the past will now hit you hard, those who have contributed in the past will be unwilling to foot the bill again whilst there is no chance of going back and seeking contributions from those who did not pay before.

            The answer to when you should replace a carpet or window is when it is necessary. There are no fixed rules, eg a carpet depends on the quality and usage but you should replace it before it becomes a health and safety risk.

            A court or tribunal will only require you to act reasonably.

            Comment


              #7
              I agree with eagle2 - if the lease doesn't specify when maintenance should be done it should be done 'when required'. To some degree the shareholders of a leaseholder owned management company get to decide for themselves when maintenance is carried out - it depends whether they want to live in a property that always looks good (so new carpets as soon as any slight signs of wear start to appear), or if they want to minimise service charge costs (new carpets only when it is necessary to replace them to prevent them becoming dangerous).
              What is reasonable can usually be determined by what the majority want - although the opinions of the minority do also need to be taken into account. For example, if 9 out of 10 shareholders voted to replace a nearly new carpet because they wanted to change the colour, the 10th shareholder, who preferred to keep maintenance to only necessary work, may well be able to get their share of the cost ruled as unreasonable if it was decided by a tribunal.

              Comment


                #8
                Originally posted by Silverdale View Post
                Thank you, that makes sense.
                iii When superseded such as should we expect double glazing or is single fine?
                This would likely depend on what your leases allow, what the law says at the time, and what the cost would be.

                Replacing normal windows with double glazing would usually be classed as an improvement, so would not be allowed to be included as service charge cost unless the lease allows for improvements.
                However, if the windows need replacing anyway, buildings regulations may mean that improvements are legally required. Alternatively, it may be found that replacement with double glazing would actually be cheaper than sourcing 'like-for-like' single glazed windows, which would mean that the improvement could be justified on cost.
                You can also include improvements in service charge costs if all leaseholders agree to it (although it's best to get their agreement in writing in case they later change their minds!).

                Comment


                  #9
                  Of course there is often a difference of opinion regarding what is and what is not acceptable in blocks of flats that are owned by different interested parties.
                  An owner occupier is more likely to want to reside in a building with common areas that are in a good state of repair, whereas a landlord is more aware of the costs rather than aesthetics of the common areas (both IMO).

                  Comment


                    #10
                    Thank you all,

                    Originally posted by Macromia View Post

                    This would likely depend on what your leases allow, what the law says at the time, and what the cost would be.

                    Replacing normal windows with double glazing would usually be classed as an improvement, so would not be allowed to be included as a service charge cost unless the lease allows for improvements.
                    I see, never thought of an improvement as a separate state to a repair but fair enough, I guess it comes down to what is reasonable and more importantly that all agree as if one doesn't it's a problem to retrospectively balance.

                    I think any money spent is probably a write-off unless that person can evidence the dilapidation and failed requests to repair.

                    Many thanks for your thoughts.





                    Comment


                      #11
                      Replacing single glazing window by double glazing is allowable expense against the rental income :

                      https://www.gov.uk/hmrc-internal-man...anual/bim46925

                      Comment


                        #12
                        Originally posted by Silverdale View Post
                        I see, never thought of an improvement as a separate state to a repair but fair enough, I guess it comes down to what is reasonable and more importantly that all agree as if one doesn't it's a problem to retrospectively balance.
                        It is always important to check what the lease says before carrying out any work with the expectation that all leaseholders will contribute to the cost.
                        If there is any doubt as to whether or not the lease would allow the work to be charged to the service charge account best practise would be to get agreement from all leaseholders before proceeding (preferably after giving them a very clear indication of the costs involved, including an allowance for potential excesses, and getting their clear agreement in writing).
                        Leaseholders can potentially challenge service charge costs years after work has been carried out, but they lose the right to challenge costs if they have agreed to them.

                        The line between repairs and improvements can be blurred but if, for example, single glazed windows that are in need of repair because the frames have rotted could be replaced with equivalent single glazed windows for half the price of double glazing, you would need unanimous agreement before proceeding (if your lease doesn't allow improvements) because otherwise leaseholders could potentially win a ruling that they only need to pay what the single glazing would have cost.

                        Management companies owned and ran by leaseholders cannot afford to have rulings like this against them because they usually have no way to recoup lost costs because they tend to have no other income.




                        Originally posted by Gordon999 View Post
                        Replacing single glazing window by double glazing is allowable expense against the rental income :

                        https://www.gov.uk/hmrc-internal-man...anual/bim46925
                        That's for landlords who are subletting their properties for financial gain, allowing them to offset the cost of this type of improvement against their tax liabilities.

                        Whether improvements are allowed to be carried out by the freeholder, and included in service charge costs charged to the leaseholders, is a separate issue and whether or not it is allowed depends on the terms of the lease.

                        Comment


                          #13
                          Usually wooden window frames last about 25 - 30 years and have to be replaced by new frames . This replacement is better done for the entire building at the same time due to cost of erecting scaffolding and paid by the service charge account. When window replacement is done with internal redecoration to the communal areas , it can added £10K onto the capital value of each flat in the building.

                          Comment


                            #14
                            The overriding factor is to act reasonably. It is rare to obtain 100% agreement from leaseholders but if a majority agree with you and you are not discriminating against any leaseholder, it is unlikely that there will be a successful challenge against you. The line between repairs and improvements can be fine and the HMRC guidance is relevant although offered in a different context, an improvement involves an asset which is capable of doing more than it could before. The statement that double glazing has become the industry norm could be used to justify a decision to install double glazing.

                            Comment

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