Landlords often seek to recover their costs associated with a let property from tenants by way of service charge payments. As a tenant, it is important to be aware what costs can and cannot be recovered by the landlord through service charge demands.
Generally, no tenant is obliged to pay a service charge except when it is required by the terms of the lease. The fact that the tenant has the benefit of a service does not mean the tenant has to pay for that service.
Equally, the fact that a landlord does not receive payment for a service does not mean they can stop providing the service.
When you have a lease
- There is no presumption that a landlord is entitled to a full recoupment of costs.
- The landlord will only be able to recover all their costs when it's in the terms.
- Careful scrutiny of your lease is needed, as the terms of the lease will show what can be recovered by the landlord.
- If the landlord seeks to recover items outside the scope of the service charge in the lease, it is likely that they are not payable and should be resisted.
- Check whether any documents or side letters may bind the parties in respect of service charge provisions.
When your lease has expired
You have the protection of security of tenure
You will continue under the same terms as under your expired lease. Careful scrutiny of your lease is needed.
Security of tenure applies to most leases of commercial premises for over six months.
You do not have protection
You did not have the protection of the Landlord and Tenant Act 1954, because it excluded security of tenure. In this case, you will most likely be occupying as either a tenant at will or under the terms of an implied periodic lease.
The terms of the tenancy at will or periodic lease are the same as under your previous contractual lease, except they are inconsistent with a tenancy at will or periodic tenancy.
You should therefore carefully consider making service charge payments which would not otherwise have been covered under your former lease's terms.
Making payments that were not originally covered under your lease may mean the landlord can claim that you have varied the terms.
When you do not have a lease
As there are no terms, there is no automatic right for your landlord to recover service charges. However, you might be deemed to have agreed a payment is due in a range of circumstances, eg if you had previously.
If you have not agreed to pay service charges, your landlord will have limited options beyond either agreeing or seeking a declaration from the court. Otherwise, they will have to go through statutory proceedings.
When the lease terms haven't been applied
It is not unusual for parties to agree a lease but then not stick to them entirely.
Where a properly drafted lease is in place, it is very unlikely that either you or your landlord will be able to argue that conduct alone has varied the documented service charges.
This is not particularly useful if you are arguing against a service charge that your landlord is now demanding. Your landlord would also struggle to argue that a history of paying for items shows an implied agreement to make payments now.
If the landlord increases a service charge
If you have been under a lease for some time, you may receive a higher than usual service charge demand.
The ability to charge an increased service charge depends on your lease terms.
Remember that your lease may:
- have a fixed service charge, in which case it will be clear what your landlord can charge
- have a capped service charge, so there could be disagreement over the actual cost below that
- state that the charge is equal to the landlord’s costs
- limit the services your landlord can charge for.
Property management charges
What property costs are recoverable will depend on the terms of your lease and any exclusions.
If there is no lease, you should seek a breakdown of any increased management costs. The landlord does not have to be reasonable. Market forces and ‘the Code’ may help.
The Code is a guidance note and surveyors are not obliged to follow its advice or recommendations. However, it is considered best practice and the courts are likely to take it into account.
Recovering a management fee
The Code does allow for landlords to recover a management fee from tenants. A management fee should relate to the person managing ‘the services comprised in the service charge’.
The Code notes that in some circumstances the manager may comprise a tiered management structure (ie regional team, county teams and national teams). It cautions that in such cases the manager ‘should be prepared to demonstrate that the total cost of management is fair and reasonable’.
If you have overpaid
First, check the terms of your lease if the item can be claimed for.
If you have no lease in place, look at your previous lease, and whether the actions of you or your landlord may suggest you have agreed to make the relevant payment.
If a particular service is covered by the service charge, ensure that any pre-conditions have been fully met. Consider if the costs are reasonable.
You should make sure you don't continue to overpay. You may also consider, subject to limitation arguments, seeking repayment.
The first step is usually to raise the issue with your landlord to see if it can be sorted out without disagreement. If matters cannot be agreed, you will probably need legal advice.