Service charges for flat tenants – how fair are they?

In a recent case it was found that two landlords were in breach of their accounting obligations with regards to their leases. It had led tenants to question their own lease agreements and to make sure that they too are not paying too much for their service charges.

About the case ...

A tenant owned long leases on seven flats in two luxury developments. Although he had two landlords, the terms of the leases were identical. He complained that his service charges were unreasonable and that, despite numerous requests, his landlords had failed to explain how they had been calculated.

He challenged a number of service charge demands on the basis that they were not accompanied by professionally audited accounts, as required by the leases.

Initially the court ruled that he was correct, and that the bills he received were invalid and that no service charges were payable.

The landlords appealed.  It was later concluded that they were entitled to put in estimated bills, based on projected future costs, and that the leases did not require them to be backed up by audited accounts. The landlords’ failure to provide such accounts did not suspend the tenant’s obligation to pay the estimated service charges on demand.

Whilst the court expressed considerable sympathy for the tenant in that the landlords were plainly in breach of their accounting obligations under the leases, the matter was sent back to the original court for a decision to be reached on the reasonableness, or otherwise, of the service charges. The landlords were directed to produce fully audited accounts prior to that hearing.

If you are a tenant and think that you are paying too much, or you are a landlord and want to make sure that you're doing things right, please contact us to discuss.