Can a leaseholder apply for a determination of reasonableness for historical service charges?

Jonathan Watts, Operations Director at Brady Solicitors highlights a recent case and offers advice for managing agents and their RMC clients.

Disputes over the reasonableness of service charges continue to keep both property management law firms and the First-tier Tribunal busy – and it’s a topic we’ve written about frequently.

Section 27A of the Landlord and Tenant Act 1985 allows leaseholders to apply to the Tribunal for “a determination whether a service charge is payable and, if it is, as to the amount which is payable.”

So, if a leaseholder is unhappy about charges, they can make an application to the First-tier Tribunal to have them determined.

In the case of Marlborough Park Services v Micha Leitner from earlier in 2018, the Tribunal was asked to consider an application for a determination of reasonableness for service charges dating back to 2007. The leaseholder made the application under s.27A.

The interesting part to this case was that the leaseholder had paid the service charge on his two properties from 2007 to 2012 without complaint.

He then didn’t pay for the year April 2012 to April 2013.

The freeholder (Marlborough Park Services) obtained a County Court judgment against the leaseholder and, when payment wasn’t forthcoming, served a s.146 notice.

The leaseholder claimed he had not received any correspondence on the matter and said that whilst he would pay the service charge, he would not pay any interest or legal costs. He applied to the First-tier Tribunal to determine the reasonableness of the service charge for the period of 2007 to 2016.

The freeholder applied to strike out this application.

The freeholder argued that the FTT had no jurisdiction to hear the leaseholder’s application as there was a determination by the court – and the leaseholder had been previously paying the service charge without protest, so was effectively agreeing to the sums due.

The FTT found in favour of the leaseholder and refused to strikeout the application, on which point the freeholder appealed to the Upper Tribunal.

The Upper Tribunal effectively viewed the service charge in three parts and ruled that:

  1. The arrears from 2012-2013 were subject to the County Court judgment and the FTT was wrong to say it had jurisdiction to consider an application to determine reasonableness.
  2. The payments made from 2007 to 2012 had been agreed by the leaseholder’s payments made over an extended period of time without protest. This amounted to an agreement by the leaseholder that the sums were reasonable, which meant the FTT again had no jurisdiction to hear the leaseholder’s application.
  3. But… the service charges incurred after 2013 could be considered for a determination of reasonableness. Since the leaseholder had not made any statements to indicate that he agreed to the sums demanded, the FTT had jurisdiction to deal with his application in respect of these service charges. 

What does this mean for freeholders and managing agents acting for their RMC clients?

If a leaseholder brings a late challenge and has previously paid without complaint, the Tribunal is likely to find that it cannot allow an application to determine the reasonableness of the service charge. However, for challenges made more recently, and where there is clear evidence of dispute (whether through non-payment or other communications), then an application for determination may be permitted.

It is clearly important to make sure that your service charge demands are fair and will stand up to a test of reasonableness, should they be challenged in the FTT. For more advice and information on the topic, you may find this blog post helpful:

For a friendly conversation with one of the legal property management experts at Brady Solicitors, please do get in touch.

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