Residential Service and Administration Charges

This is a summary of the regulations brought in on 1 October 2007 under the Commonhold and Leasehold Reform Act 2002 (“the Act”) by The Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007 (“the Service Charge Regulations”) and The Administration Charges (Summary of Rights and Obligations) (England) Regulations 2007 (“the Administration Charges Regulations”).

Service Charges
Service charges are those amounts payable to landlords as part of or in addition to the rent for maintenance, insurance, repairs and the landlord’s costs of management.

Last year, a new section (section 21B) was added to the Landlord and Tenant Act 1985. This stipulates that from 1 October 2007 where a service charge is variable, the landlord must include a summary of the tenant’s statutory rights and obligations in respect of it in any demand for payment of it. The exact wording is set out in the regulations and must be legible (in at least 10 point if in typed form).

If s.21B is not complied with, then tenants are entitled to withhold payment and may also request the Leasehold Valuation Tribunal to determine whether the charge is reasonable. In addition, the landlord would not be able to commence proceedings to recover the charge, or to enforce any penalty provisions under the lease (e.g. interest).

Administration Charges
These were introduced by s.158 of the Act and include any variable administration charge charged by the landlord or his agents for the supply of documents or other information, an approval or consent under a lease (e.g. for a licence to assign) or for the service of penalties arising from breach of covenant).

s.11 4 (1) of Act provides that any demand in respect of an administration charge must also be accompanied by a summary of the rights and obligations on the tenant in relation to this. The wording of the summary is set out in the Administration Charges Regulations. Where this is omitted then the tenant is entitled to withhold payment and any penalties under the lease for non-payment will be ineffective. In addition, the tenant may apply to the Leasehold Valuation Tribunal (“LVT”) for it to determine whether the charge is reasonable.

The recent LVT case of Pellegrino v. Mehson Property Co Limited [17 March 2008] dealt with various fees imposed by the managing agents of the property for answering enquiries on a prospective sale and for the grant of a retrospective licence for alterations. It was held that the administration charges were unreasonable and reduced considerably and the managing agents were ordered to refund the difference between their initial fees and those that the LVT had determined.

The LVT case of Patnaik and Patnaik v Wordsworth Place (Kentish Town) Limited [27 March 2008] concerned the Respondent’s solicitors costs charged in respect of a alleged breaches of covenant by the Applicant. Firstly, it was held that these costs were administration charges within the meaning of the Act and secondly, that they were unreasonable.

The LVT ordered that the Respondent’s solicitors costs be reduced from £1,213.19 to £295 plus VAT (constituting one hour of work) and held that before these costs could be claimed, a new invoice containing a statement complying with the Administration Charges Regulations would need to be served on the Applicant.