Service charge disputes can cause serious disruption to block management, particularly when leaseholders raise challenges to historic costs. A question we are regularly asked is whether there is a time limit on how far back leaseholders can go when challenging service charges through the First-tier Tribunal (FTT), which we look to answer within this blog, along with how managing agents can protect against historic challenges.
The answer may come as a surprise to many managing agents, as we know the limitation period for a claim made by freeholders, RMCs and managing agents is 12 years (or 6 years if the service charges are reserved as rent), but the same period does not always apply for leaseholders. Leaseholders are entitled to apply to the Tribunal to challenge the reasonableness and payability of service charges without necessarily being restricted by the usual limitation periods that apply in other types of legal claims.
Can leaseholders challenge service charges from over 10 years ago?
Under Section 27A of the Landlord and Tenant Act 1985, leaseholders can apply to the FTT to determine whether a service charge is reasonable and payable. Unlike a freeholder’s claim for arrears recovery through the courts, a Section 27A application is not treated as a debt claim. This distinction is crucial, because it means that the limitation period under the Limitation Act 1980 does not apply.
In practice, this means that leaseholders may be able to challenge service charges from many years ago, extending far beyond the timeframes that most managing agents would ordinarily expect. For managing agents and freeholders, this creates an ongoing exposure that must be managed carefully.
What counts as payment under protest?
There is, however, an important caveat. Courts and tribunals have recognised that if a leaseholder continues to pay service charges over a period of time without raising any objection, this can amount to implied acceptance of the charges. The act of paying without protest can be taken as evidence that the sums demanded were agreed to, but it is not always conclusive.
From a management perspective, this highlights the importance of record keeping and communication. Where leaseholders do make payments but wish to preserve their right to dispute later, it is essential that these payments are clearly documented as being made under protest. Without this, it becomes far harder for them to argue against the charges retrospectively.
Can leaseholders claim back historic service charge over payments?
If the Tribunal determines that certain charges were not payable, leaseholders may then seek to recover historic overpayments. In contrast to the Tribunal application itself, the recovery of money through the courts is subject to limitation rules. These types of claims are usually framed as restitution or unjust enrichment and are generally bound by a six-year limitation period, which typically begins when the overpayment or mistake was discovered.
Alongside statutory limitation, the equitable principle of laches may also play a role. Laches allows freeholders to argue that it would be unfair to allow repayment if the leaseholder has delayed unreasonably in bringing their claim. This can provide an additional line of defence when dealing with historic disputes.
How do managing agents manage service charge challenges?
For managing agents, the lesson is clear. Leaseholders are not restricted by statutory time limits when making applications to the Tribunal to challenge service charges, and this means that disputes can, in theory, stretch back many years. This makes careful record keeping absolutely essential. Retaining invoices, accounts, and supporting documentation well beyond six years will place freeholders and managing agents in a far stronger position should a challenge be made.
It is equally important to manage the way disputed payments are handled. Where leaseholders indicate that charges are being paid under protest, this should be properly recorded to ensure that no implied acceptance can be argued later. Finally, understanding the interplay between Tribunal applications and subsequent court claims for reimbursement is important, as limitation periods and equitable defences may provide protection where repayment is sought.
Below we have collated a brief checklist to assist managing agents:
- Keep service charge records (invoices, accounts, supporting docs) well beyond six years.
- Always note when payments are made “under protest” – and file this clearly.
- Anticipate that leaseholders may challenge charges going back many years.
- Understand the difference between Tribunal challenges and court claims – limitation rules aren’t the same.
- Use good communication to head off disputes early and protect relationships.
Conclusion
The differing approaches to limitation periods creates a difference in procedural routes between freeholders and leaseholders. While freeholders are bound by limitation rules when pursuing arrears, there is no express statutory limitation period faced by leaseholders when challenging the payability of service charges through the FTT. Additionally, with leaseholders getting savvier, we expect historic This makes it more important than ever for managing agents to adopt robust processes around documentation, communication, and dispute management.
