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Service Charges

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Most long leases of blocks of flats provide for the landlord to repair and maintain the block and to recover the cost through a service charge, payable by the tenants.  Who does what work tends to be decided by the landlord and the Service Charge (Consultation Requirements) Regulations as well as the Landlord and Tenant Act 1985 which seek to protect the tenants in two specific ways:

Firstly, they protect the tenants by limiting the charges to those that are reasonably incurred and to work that is carried out to a reasonable standard.  Secondly, the landlord must comply with a consultation process before they are able to recover the costs when commissioning what is defined as “qualifying works’ or a ‘qualifying long term agreement’.

The consultation requirements are generally recognised as being split into 3 separate stages and are fairly detailed but can be summarised as first of all involving the landlord providing notice to the tenants of their intention to carry out the works and inviting representations from the tenants.  The landlord should then provide the tenant with estimates and finally a notification of their decision together with their reasons.

If the Landlord does not follow the correct procedure the maximum he can recover from each tenant is £250.

The recent case of Daejan Investments Ltd v Benson and others has dealt with the question of exactly what happens when the landlord does not comply with the consultation requirements.

Daejan were the freehold owner and landlord of a block of flats in Muswell Hill of which 5 flats were held under long leases that provided for the payment of a service charge.  The landlord instructed a contractor to undertake various works to the property at a total cost of £270,000 however they did fail to comply with the consultation requirements in the Act and as a result it was held that they are only allowed to recover the sum of £250 from each tenant (a total of £1,250)

Daejan had argued that their failure to follow the procedure should be excused (as the legislation can allow) on the basis that it would be reasonable to dispense with the requirements however this argument was rejected by the Court of Appeal.  The Court also held that when considering whether to dispense with the consultation requirements, the financial cost to the landlord was not relevant.

Daejan has made it quite clear that landlords (and managing agents) do need to be absolutely sure that they are aware of and comply with the consultation requirements.  Daejan only recovered £1,250 of the £270,000 that they had spent on the works and it is certainly anticipated that there are many more landlords who will be caught out by this trap.
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