THE COMMONHOLD AND LEASEHOLD REFORM BILL

FACT SHEET No 6 – SERVICE CHARGES & ADMINISTRATION CHARGE

The Commonhold and Leasehold Reform Bill will introduce a number of changes to leaseholders' rights in relation to service charges under the Landlord and Tenant Act 1985.   The Government wants to ensure that the existing rights are strengthened and improved.  It is often the case that leaseholders may be asked to hand over large sums of money to the landlord of their property to pay for works and services.  Naturally, they will want to be sure that their money has been put to good use.

Existing Rights under the 1985 Act: -

the right to be consulted about major works

the right for service charges to be reasonable

the right to challenge the reasonableness of any service charge or the standard of works

the right to certain information about service charges.

The Government has concluded that the existing rights are not as clear as they might be and enforcement can prove extremely difficult.  

The Commonhold and Leasehold Reform Bill will: -

require landlords to provide annual accounting statements that provide information about monies paid into a service charge fund, or standing to the credit of the service charge fund, as well as costs incurred by the landlord.  Leaseholders will be able to withhold service charges if this requirement has not been met;

require landlords to provide leaseholders with a summary of their rights and obligations in relation to service charges;

give leaseholders the  right to inspect documentation relevant to their accounting statements within 21 days of their request.  Leaseholders will also be able to take copies of that information, or have copies provided to them on payment of a reasonable fee;

clarify that leaseholders can challenge service charges at a Leasehold Valuation Tribunal where the amount has already been paid to the landlord;

require landlords to hold service charges funds in designated separate client accounts.  Leaseholders will have the right to ask for proof that this requirement has been met;

provide that where leaseholders have reasonable grounds for believing that the landlord was not holding their service charges in a separate account, they will be able to withhold service charges;

provide that it will be a criminal offence to fail without reasonable excuse to use separate client accounts (the penalty will be a fine of up to £2,500);

provide that service charges are held in trust, even where only one leaseholder has to pay them;

enable leaseholders to inspect the insurance policy for the insurance for their building, without having first to ask for a summary of the insurance cover.  Leaseholders will be able to take copies of the insurance policy, or have copies provided to them on payment of a reasonable fee;

extend the existing definition of service charge to cover improvements, and allow it to be further extended by regulations.  The intention is to ensure that the definition applies to all monies recoverable under a lease in relation to services. This would ensure that leaseholders' existing rights would apply to such items (e.g. the right to challenge the reasonableness of the sums claimed at a LVT);

give leaseholders a new right to challenge unreasonable administration charges payable under a lease (e.g. for granting approvals and penalties for late payment);

simplify and strengthen the existing right of leaseholders to be consulted on major works. The requirement to consult leaseholders about major works would apply when the amount payable by any leaseholder exceeds a prescribed sum;

introduce a new requirement for landlords to consult before entering into contracts for the provision of ongoing works or services lasting more than 12 months.  Disputes over compliance with the requirements would be transferred from the courts to the Leasehold Valuation Tribunals.