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Challenging Service Charge – It can’t be left too long!

Challenging Service Charge – It can’t be left too long!

Leaseholders have the right to challenge service charge in the First-Tier Tribunal Property Chamber (“FTT”) pursuant to Section 27A of the Landlord Tenant Act 1985.

These types of applications do not fall under the jurisdiction of the Limitation Act 1980. (The Limitation Act sets out rules as to the length of time a creditor has to initiate action to recover a debt). In the case of service charge recovery this is normally 6 or 12 years depending on the terms of the lease.

An application at the FTT does not form a claim to recover the service charges but merely provides a determination as to whether a service charge is payable and, if it is, as to—

(a) the person by whom it is payable,
(b) the person to whom it is payable,
(c) the amount which is payable,
(d) the date at or by which it is payable, and
(e) the manner in which it is payable.

This means that it is possible for leaseholders to challenge service charges that are well over the 6 or 12 year period. This could put the Landlord (and/or Management Company) at significant cost and difficulty.

A Leaseholder can also challenge service charges that they have paid as long as they have not admitted or agreed it previously. We have had experience of dealing with Leaseholders that have made applications regarding service charge from 15 years ago – it can be very difficult to get the (often voluminous) documentation together with there having been various handovers of managing agents.

The recent case of Cain v Islington LBC [2015] UKUT 542 (LC) now gives Landlords a degree of assistance in dealing with applications under Section 27A for service charge that is historic and paid for.

One of the arguments made was where a Leaseholder makes payment of a service charge and then does not challenge it for a number of years then surely it must be said that they have accepted or admitted that the amount was due?

The Upper Tribunal agreed in this instance and said that the Leaseholder’s actions (payment of the service charge for a number of years without any comment) would amount to an admission meaning that the Leaseholder was unable to challenge the historic service charge.

The FTT should therefore consider the facts and circumstances of the payments that have been made and it would appear that if a Leaseholder has made a number of payments historically it is correct to consider that they have accepted and admitted that the service charge was due.

This is no doubt a relief for Landlords that are potentially facing applications on accounts that they thought were long closed.

If you have any queries regarding the reasonableness of service charges or applications to the FTT then please contact LMP Law.

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