Faulty service charge demands are often the cause for issues surrounding non-payment. Double checking demands to make sure they are compliant can genuinely help to avoid any cash flow issues.
There is no need to panic even if there is an issue discovered with the demand. Many mistakes can often be corrected and the demand re-served.
We check all demands upon instruction and give advice for re-issuing if required (in fact we offer a complimentary checking service).
Here’s my advice on things to look out for to avoid mistakes.
Terms of the Lease
Always ensure in the first instance that your demands are compliant under the terms of the relevant lease – It can be convenient and time efficient to rely on great IT systems and go with a ‘one size fits all’ approach when big demand periods arise. However, each development may require a different approach.
The machinery of service charge collection is usually outlined in the lease. Many times it is assumed that service charge is simply payable in advance. Unfortunately, that is not always the case.
There can be many different clauses within the lease that will determine the when and how of service charge collection.
Leases commonly prescribe service charges payable as;
• in advance based on a budget
• in arrears based on accounts or
• an interim service charge is payable with the remainder to be paid once service charge certificates are served.
Check to make sure that your demands reflect the exact requirements.
S.47 and 48 of the Landlord & Tenant Act 1987
This section of legislation (clearly established by recent case law) sets out a requirement that a demand must include the Name and Address of the Landlord. For the purposes of section 47 this must be the actual registered office within England or Wales of the Landlord and not that of the managing agent (unless it is the same).
For the purposes of section 48 the managing agents address can also be provided if they have authority to take service of documents on the Landlords behalf.
I would suggest the following wording:
‘NOTICE IS HEREBY GIVEN under Section 47 & 48 of the Landlord & Tenant Act 1987 that the name and address of your landlord is: (INSERT NAME OF LANDLORD AND REGISTERED ADDRESS OF LANDLORD’
Please note that if the service charges are due to a RTM Company then you have to give their name and address details on the demand to satisfy section 47/48. In order to minimise any risk or doubt you may wish to include the Landlord’s details as well.
Summary of rights and obligations for service charges AND administration charges
S.21B of the Landlord & Tenant Act 1985 provides the template of the notice to be given in relation to the tenants’ rights and obligations. There is definitely an increased awareness that this notice MUST be served along with the demand in order to validate it. It is certainly clear in those minds who have tried to fit the notice with font of at least 10 point on to one side of A4.
However – top tip to add on to your checklist is a reminder that if you are charging administration charges then the Administration Charges – Summary of tenants’ rights and obligations must also be sent under the provisions of the Commonhold and Leasehold Reform Act 2002, in Section 158 and Schedule 11(4)(1).
I recommend best practice is to serve both notices with all demands and certainly both with the reminders as these are the ones that have normally incurred some form of administration charge.
The 18 month rule – Section 20B(1) of the Landlord and Tenant Act 1985
You should always try and ensure that you demand service charge from leaseholders within 18 months of it being incurred. Section 20B(1) provides that charges are not recoverable if they were incurred more than 18 months before being demanded. As you can appreciate this can potentially be quite devastating for landlords or management companies who could find themselves out of pocket due to timing issues.
If you do find yourself in this position it is worth considering Section 20B(2) of the Landlord and Tenant Act 1985 which states that the 18 month rule shall not apply if within 18 months of the relevant costs being incurred the leaseholder is notified in writing that those costs had been incurred and that they would be later required under the terms of their lease to contribute to them by the payment of a service charge.
It may therefore be prudent to send out notifications on costs that have been incurred if you see any potential issues with demanding service charge in the normal manner for a prolonged period.
Contact us if you have any question
If you’re on the ball with the above then there should be little room for argument against payment due to incorrect form of the demand.
If you have any questions about service charges or demands then LMP Law would love to hear from you.