Flat fee service charges? Make sure you know what you can include..

Brady Solicitors’ Liz Rowen reminds managing agents of the need to get familiar with the lease when taking on a new block.

As a managing agent you will be aware of making sure that you make service charge demands in accordance with the lease. Flat fee service charge demands tend to be favoured in most leases, not least because they give leaseholders more certainty over their expenditure.

A recent case reviewed by barrister Amanda Gourlay in her Law and Lease blog highlighted however that a flat fee is not a solution that will work on a universal basis – particularly if your lease doesn’t include provision for recovering a managing agent’s fees.

The service charge case

The case concerned (Westleigh Properties Ltd v Mrs J S Grimes) involved four flats within a single property and a long-running service charge dispute. The landlord was pursuing unpaid demands whilst the leaseholder had also appealed to the LVT for a determination on the payability of the service charge.

The LVT subsequently disallowed payment of the management fee, a judgment which was then appealed by the landlord.

When the case reached appeal, Martin Rodger QC examined the lease in some detail. He found that there was no mention of managing agents’ costs. The lease set out the practical maintenance services that each lessee was obliged to pay for but there was no mention of contributing towards the managing agent’s costs of arranging for the work to be done.

The outcome of the appeal

The judge thus found that the costs of ‘managing’ the block – the arranging of the insurance, paying utility bills, providing information of the annual accounts and, specifically, demanding and collecting service charge monies – were not recoverable under the terms of the lease.

The costs incurred in arranging for the practical maintenance of the block were however payable by the leaseholders.

In essence, and to paraphrase Amanda Gourlay, the leaseholder is therefore only liable to pay the management fee that relates to the elements of the service as prescribed by the lease. So, in this case, practical maintenance work costs can be charged; administration and management ones can’t.

Because of this, a flat management fee is not appropriate and the managing agent has a duty to calculate which costs are recoverable and which aren’t – no doubt quite a painful process!

Our advice

There are real financial implications of not understanding the how, what, where and when of service charge demands. Leases can look similar but a thorough investigation can save a headache further down the line.

If the lease provides for a flat fee but there is no mention of managing agents’ costs, you need to ensure that the fee only includes those costs that can be recovered – all of which needs good systems and record-keeping.

Lease review specialists

If you are taking on a new block, or are facing difficulties on an existing development, talk to Brady Solicitors’ lease review experts we can help you to make sure you know what you’re dealing with. Contact us on 0115 985 3450 or drop us an email. We’ll be pleased to help.

Get in touch with our experts

With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

Contact us
Two people discussing at computer