Service charges Interim payment clarification

[Starlane]

You can argue whether or not the charge is reasonable but it is difficult to argue that a reserve fund contribution is unreasonable.

Last year they made a ridiculously low reserve demand for £37.00 and wont tell me what monies are in the reserve, in our lease its called the sinking fund NOT a reserve. This year they have made over a 2000% increase demand and wont say what the purpose of the sinking fund is for again. They have not undertaken any external repairs and cyclical decoration is well overdue. Not a penny of the reserve/sinking fund monies have been spent on the external structure repairs/maintenance/only service provided insurance and no decoration for 7 years!

[Macromia]

I would like to ask for your help and guidance - what is your definition of an interim payment?

Any payment demanded before the annual service charge accounts for the year are finalised could be considered to be an interim payment.

1. The Lessee shall pay to the Lessor or managing agents as the case may be the Lessee’s proportion of:

1. In advance in each year the amount which shall be reasonably estimated by the manging agents or the Lessor as the case may be of the Service Charge for the year
2. Any further sums as shall be required by way of an interim charge during the course of the year

This seems to allow the managing agents to demand the estimated service charge costs for the year in advance (which means that they can demand payment at any point before the end of the year if they reasonably estimate that the money will be needed).
It also allows them to make additional demands as interim charges if they decide that previous demands they have made are not sufficient to cover all costs.

In my view the landlord has not complied with the lease the service charges are required to be paid quarterly according to the lease so I have told the landlord that the May demand is invalid

Can you shed any advice on the above and any case law as I don’t accept that I should be asked to pay out large sums of money in one go and don’t know what the monies are for or being spent on?

Nothing that you have quoted suggests that the lease requires service charges to be demanded quarterly (although that could be in a part of the lease that you haven't quoted).

There is nothing in UK law that prevents leaseholders from having to pay out large sums of money - the only requirements are that the money is for costs that the lease makes payable by leaseholders and that the costs are reasonable. Hypothetically, section 20 consultation requirements also apply, but these can be avoided in most cases and don't necessarily have to be carried out before costs can be demanded.

The paragraph not in my lease clause reads "that the lessor shall be liable to pay " any further sums as shall be required by way of an interim charge during the course of the year"....but I am NOT the LESSOR I am the lessee?

If the clause is not in your lease it has no relevance to you - unless, and until, a court or tribunal rules otherwise or both you and the freeholder agree that it does apply.

[eagle2]

Starlane,

You can ask how they have calculated the reserve/sinking fund contribution. If it is calculated correctly, the amount should not vary substantially from year to year because the object of a reserve fund is to even out the costs over the life of the lease. You are also entitled to know how much is held in the reserve fund at the end of each year and you should be provided with a summary of the movements in that fund. Challenging the reserve fund contributions is another matter, it is extremely difficult to convince a tribunal that the contributions are unreasonable.

[eagle2]

Interim charges should be defined within your lease but I agree with macromia that it usually means any charges payable on account and before the actual expenditure is known. What does your lease say about receiving an annual certificate showing the actual expenditure for the year and adjusting the interim charges to the actual amount payable? You should be credited if your share of the actual expenditure is less than the charges on account, although some leases state that any excess may be added to the reserve fund..

[AndrewDod]

Starlane,

The name is irrelevant. The lease (if it permits a reserve fund) will state what it is for. They don't have to tell you what it is for beyond that except in broad terms unless the lease says they do. In general sinking funds are there for things that only happen in a blue moon (every 20 years the roof blows off) - in general (depends on the lease) the purpose is not to pay for anticipated cyclic expenditure like "maintenance/only service provided insurance and no decoration for 7 years"

[Section20z]

I always use reserve funds for cyclical expenditure, decorating etc. It helps leaseholders budget for major items .
If the roof "blew off" , you would hope it would be an insurance matter.

[AndrewDod]

At least half the leases I have seen state specifically that this is not what the reserve fund is for. So it depends, I agree

[eagle2]

The RICS management code 7.5 states that "the intention of a reserve fund is to spread the costs of "use and occupation" as evenly as possible throughout the life of the lease to prevent penalising leaseholders who happen to be in occupation at a particular moment when major expenditure occurs".

It adds that "it is ... good practice to hold reserve funds where the leases permit. If the lease says the landlord "must" set up a fund, then this must be done,... No attempt to collect funds for a reserve fund should be made when the lease does not permit it".

[AndrewDod]

RICS can't and does not dictate the use or purpose of a reserve fund or the way this is computed beyond what the lease says.

[Starlane]

AndrewDod this is what our sinking fund can be used for..it does state decorating!

1. To set aside ( which setting aside shall for the purpose of the Sixth Schedule be deemed an item of expenditure incurred by the Lessor) such sums of money as the Lessors reasonably require to incur in replacing maintaining renewing and decorating those items which the lessor hereby covenants to replace maintain renew or decorate ( such sums set aside to be a sinking fund)

[Starlane]

So if none of the monies have been used for the purpose of the sinking fund then would this be a breach of trust? And despite repeatedly asking what is the purpose, what are the monies for, please provide me with a statement of the account balance, are the monies held in an interest bearing account and how are they protected? I get BLANK response!

[eagle2]

You are entitled to know what the fund is to be used for and how it has been calculated otherwise you do not know if it is reasonable or not. I would be tempted to suspend payment until you receive a reply and an explanation when the redecoration is to be carried out. That should prompt a response.

[Starlane]

eagle2,

Thank you for all your help

[eagle2]

RICS can't and does not dictate the use or purpose of a reserve fund or the way this is computed beyond what the lease says.

If someone applies to the FTT, it is always useful to quote the lease first and the RICS management code second.

[Starlane]

Macromia,

Thank you for all your help I do appreciate all your different perspectives and wisdom