Landlords – Sidestep Correct Service Charge Procedures at Your Peril

Residential leases usually contain detailed procedures that must be followed before valid demands for service charges can be raised. Some landlords sidestep such requirements for reasons of convenience, but an Upper Tribunal (UT) decision has underlined the hazards inherent in such a course.

The case concerned a prestigious block of 56 flats, the common parts of which were owned by a services company. The tenants of 11 of those flats had refused to pay service charges due to various concerns about the property’s management. The company launched proceedings to recover arrears of more than £40,000.

The First-tier Tribunal (FTT) found that the lease did not provide for the collection of interim service charges on account. Those charges and contributions to a sinking fund maintained by the company had not been agreed at an annual general meeting (AGM), as required by the lease. The FTT, however, found that the disputed bills were payable on the basis that the procedure employed by the company was well established and the tenants had never objected to it in the past.

In upholding the tenants’ challenge to the latter ruling, the UT noted that the requirement that service charges be approved by a majority at an AGM was an important safeguard. It was neither unfair nor unjust for the tenants to rely upon the letter of the lease and, in the circumstances, the disputed bills were not payable.

Jetha & Anr v Basildon Court Residents Company Limited.