Obligation of new freeholder for service charges in the past

[jh321]

Our freeholder sold the freehold about a year ago, and we have been asking the new freeholder for our service charge accounts for the 6 month period before, and the balance on our service charge accounts when they took over.

They have now told us that when the purchased the property that the incoming and outgoing freeholder agreed between them that they would start afresh with service charges and that therefore there is no accounting and no balance on the account! We have managed to get the accounts but the new freeholder is telling us that they have no responsibility for that period - but surely they do as they are the freeholder and our lease is now effectively with them?

Surely as a lease is a continuous contract, any incoming freeholder steps into the shows and must maintain the obligations under the lease - including being able to account for service charges and balances? We paid service charges on account and now cannot get credit for it.

They also tell us that they are not responsible for any service charge expenditure prior to their acquisition, but surely they are (even if perhaps the previous freeholder is jointly responsible?)

I think my question is what obligations does the new freeholder take on when he purchases a property. Surely he cannot just decide to write off previous periods? Surely it doesn't matter who bought/sold when it, but rather obligations under our lease must be met by the current freeholder?

If you have any advice we would very much appreciate it! Thank you!

[leaseholdanswers]

Well in simple terms they should have agreed responsiblity and a share or transfer of the obligation and it is the new freeholder that bears the obligation and risk if they haven't.

This is a contractual matter between them, and unless the lease allows for a part year account during a sale, and i have only seen that once, then they should have addressed it.

So rather than get into the detail write to both landlords and make it clear
1: Quoting from your lease the former and current landlords are required between them to prepare an account as set in the lease for expenses to the period end and deal with the surplus or deficit.
2: If the period has ended exercise your right under section 21 of the Landlord and Tenant Act 1985 for a summary of expenditure served on both landlords.

Here is the lease_advice.org summary and I suggest you have your solicitor or accountant write formally to both landlords

Summary of service charges accounts

Leaseholders have a statutory right to seek a summary of the service charge account from the landlord under section 21 of the Landlord and Tenant Act 1985. The request must be in writing and can be sent direct to the landlord or to the managing agent. It can require a summary of the 'relevant costs in relating to the service charges payable' in respect of the last accounting year, or where accounts are not kept by accounting years, the past 12 months preceding the request.

Where a landlord has received such a demand he must provide the summary within one month (or within six months of the end of the 12-month accounting period, whichever is the later).

The summary should show:

* how the costs relate to the service charge demand, or if they will be included in a later demand;
* any items for which the landlord did not receive a demand for payment during the accounting period;
* any items for which a demand was received and for which no payment was made during the accounting period;
* any items for which a demand was received and for which payment was made during the accounting period; and
* whether any of the costs relate to works for which an improvement grant has been or is to be paid.

Where the service charge is payable by the leaseholders of more than four dwellings, the summary must be certified by a qualified accountant as a fair summary and sufficiently supported by accounts, receipts and other documents produced to the accountant. Where the landlord is a public sector body, one of their officers who is a qualified accountant may certify the summary, but otherwise the accountant must be independent of your landlord.
Rights to further information (inspecting accounts and receipts)

As well as receiving the summary, the leaseholder has the right under section 22 of the Landlord and Tenant Act 1985 to inspect documents relating to his service charge as a follow-up to provide more detail on the summary. Within a period of six months from receipt of the summary, the service charge payer (or the secretary of a recognised tenants' association) may write to the landlord requiring him to allow access to and inspection of the accounts, receipts and any other documents relevant to the service charge information in the summary and to provide facilities for them to be copied.

Facilities for inspection must be provided within one month of the request, and must be available for a period of two months.

There are further rights of investigation of service charges and management provided by the right to a management audit under the Leasehold Reform Act 1993 and the right to appoint a surveyor under the Housing Act 1996. Full details of those rights are set out in our leaflet 'Appointment of a Surveyor, Management Audits'.
Failure to provide a summary or allow access to further information

Where a landlord fails without reasonable excuse to comply with either a request for a summary or to inspect supporting documents they commit a summary offence on conviction and are liable for a fine of up to £2,500 (level 4 on the standard scale). The local housing authority has the power to bring proceedings, or they can be brought by the leaseholder. Local authorities are exempt from prosecution.

[jh321]

Thank you for this - I should say we are already further along as we are already into an LVT Tribunal (the reason we eventually got the figures was because it was directed by the LVT - these were provided by the old freeholder, the new freeholder says that they have no responsibility for service charges prior to their purchase). The problem that we have now is that the previous freeholder has gone, and the new freeholder is making this statement that they have no responsibility for service charges prior to the purchase of their freehold - making it potentially impossible to get the overpaid service charges repaid.

(to confuse things further we now have a RTM managing the property - hence trying to get the overpaid service charges paid over to the RTM)

Therefore it seems to me that based on your answer the most important part is that "it is the new freeholder that bears the obligation and risk if they haven't".

Is there a legal reference for this?

And I'm sorry if I sent you down the wrong route - however I think your statement that 'former and current landlords are required between them to prepare an account as set in the lease for expenses to the period end and deal with the surplus or deficit.' is also very important. As you say there as no contractual agreement (to our knowledge) of a part year, and so under the lease the current/new freeholder should be able to provide us with the accounts for the year.

Any other thoughts would be really appreciated. It seems sort of obvious that the new freeholder would 'take over' the lease - and the obligations therein - but I wonder if that is actually written down anywhere?

Many thanks!

[rgk]

Thank you for this - I should say we are already further along as we are already into an LVT Tribunal (the reason we eventually got the figures was because it was directed by the LVT - these were provided by the old freeholder, the new freeholder says that they have no responsibility for service charges prior to their purchase). The problem that we have now is that the previous freeholder has gone, and the new freeholder is making this statement that they have no responsibility for service charges prior to the purchase of their freehold - making it potentially impossible to get the overpaid service charges repaid.

(to confuse things further we now have a RTM managing the property - hence trying to get the overpaid service charges paid over to the RTM)

Therefore it seems to me that based on your answer the most important part is that "it is the new freeholder that bears the obligation and risk if they haven't".

Is there a legal reference for this?

And I'm sorry if I sent you down the wrong route - however I think your statement that 'former and current landlords are required between them to prepare an account as set in the lease for expenses to the period end and deal with the surplus or deficit.' is also very important. As you say there as no contractual agreement (to our knowledge) of a part year, and so under the lease the current/new freeholder should be able to provide us with the accounts for the year.

Any other thoughts would be really appreciated. It seems sort of obvious that the new freeholder would 'take over' the lease - and the obligations therein - but I wonder if that is actually written down anywhere?

Many thanks!

I am in a similar position myself. See s141 & 142 of the Law of Property Act 1925.

Also for leases granted after 1/1/1996 see s23 Landlord & Tenant Act 1995.

The LVT should be aware of the new landlords obligations. At our pre-trial review our new landlord had this made clear to them. If you keep in touch I will let you know how I get on, although no hearing date has yet been arranged.

Also take a look at this LVT decision. Particularly the comment from the Chairman on p16

[jh321]

Thank you! That is really helpful - and is definitely giving me a great direction to go in - much appreciated!

Good luck with yours!

[rgk]

s42 Landlord & Tenant Act 1987 determines that service charges should be held on trust.

A good reference to use at the LVT is the Service Charge Residential Management Code published by RICS. The Secretary of State has approved the code for use as evidence in Court or Tribunals.