Service charges provide a way for you to recoup costs for essential services such as maintenance, communal area cleaning, and repairs.
However, they can cause tension and disputes with tenants and leaseholders when handled incorrectly or without sufficient tact.
How you address these disputes, when and if they arise, is really important and will require a combination of clear communication, good document management, and an understanding of the law in this area.
The legal context of service charge disputes
The Landlord and Tenant Act 1985 is the most important part of getting service charges right and provides you with the regulations that you must adhere to (in England and Wales).
Here’s the relevant section from the Act and our explanation of it:
Limitation of service charges: reasonableness.
(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period —
(a)only to the extent that they are reasonably incurred, and
(b)where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;
and the amount payable shall be limited accordingly.
(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.
As you might imagine, this is a fairly spurious statement when it comes to a legal document.
For example, what does “reasonable” actually mean?
As solicitors, this is just the sort of thing that we enjoy debating about, but to make things easier for you, here’s how Clive Adams, Head of Leasehold Management defines it:
“‘Reasonable’ is generally viewed to mean ‘fair, proper or moderate under the circumstances.’ For example, when it comes to price, it would be reasonable to charge the fair market price – or lower. When it comes to work being of a reasonable standard, we might define that as ‘the sort of work you would expect a trained, experienced professional to provide’ – unfortunately, the law is never easy!”
It’s important that you understand how these principles can lead to disputes, often escalating to the First-tier Tribunal (Property Chamber), even when you do your upmost to avoid them.
One common pitfall is not adhering to the strict consultation requirements under Section 20 of the Act.
So, if you fail to properly consult your tenants before undertaking major works, they may find themselves unable to recover the full cost of those works through service charges.
It’s therefore essential to follow these procedural requirements meticulously to avoid subjecting your tenants to unnecessary financial exposure.
Common causes of service charge disputes
In our experience, service charge disputes typically arise from:
- Lack of transparency: tenants and leaseholders feel frustrated if they are not provided with clear, itemised breakdowns of service charge demands.
- Perceived unfairness: charges for services that tenants view as unnecessary or poorly executed can lead to complaints.
- Failure to consult: as mentioned, overlooking statutory consultation obligations can render charges unrecoverable.
- Poor record-keeping: landlords who cannot provide robust evidence to support service charges risk losing disputes.
Equally, to minimise the risk of service charge disputes, we recommend that you introduce the following into your standard procedures:
- Be transparent: provide tenants with detailed, clear, and timely information about service charges, including how costs are calculated and why services are necessary.
- Consult early and often: engage tenants and leaseholders in meaningful consultation processes, particularly for major works.
- Invest in quality: ensure that services and repairs are carried out to a high standard to reduce dissatisfaction.
- Maintain detailed records: keep comprehensive records of costs, consultations, and correspondence to provide evidence in the event of a dispute.
Even with the best preventative measures, disputes may still occur.
When they do, your initial steps should start with opening a dialogue between you and the tenant.
Many disputes can be resolved through clear and constructive communication, so this is a good place to start.
Remember to listen to your tenants’ concerns and provide explanations or evidence to address their issues.
If informal discussions fail, you might then want to consider mediation as a cost-effective way to resolve disputes without escalating to a tribunal.
Then, if that fails and disputes cannot be resolved amicably, seek advice from a solicitor specialising in social housing to ensure your compliance with legal requirements and minimise your financial risks.
The Birketts view
We’ve worked closely with several social housing landlords facing service charge disputes, and our advice is simple: preparation is always your best defence.
Keep accurate records, consult proactively, and ensure you are being transparent and most of the time you’ll be able to avoid issues.
However, if you are currently dealing with a dispute, our actionable advice is as follows:
- Audit your records: ensure all service charge demands are backed by detailed evidence, such as invoices and maintenance logs. If there are gaps, address them immediately.
- Communicate effectively: reach out to tenants with clear explanations of the charges, highlighting how they benefit from the services provided.
- Seek early advice: engaging a solicitor early in the process can save time and money. We can help you assess your position and recommend the best course of action to resolve the issue efficiently.
- Consider alternative dispute resolution (ADR): before heading to a tribunal, explore ADR options such as mediation to find a solution that works for both parties.
Service charge disputes don’t have to be a drain on resources if you work hard to prevent them in the first place.
For help with this, we highly recommend you speak with an experienced solicitor who specialises in assisting social housing landlords.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2025.