Service charges: reasonable and recoverable costs

Landlords of long leases are only able to recover service charges that are reasonably incurred and that relate to works delivered to a reasonable standard. However, large or costly works carried out by landlords can impose a significant financial burden on tenants through an increased service charge.

In the recent case of Garside v RFYC [2011] the tribunal made it clear that whether or not such significant works are phased – so as to spread the cost over a number of months or years – is an important consideration when deciding whether the costs of such works are reasonable and therefore recoverable.

In the above mentioned case, tenants of an estate recognised a significant amount of maintenance work needed to be carried out due to a number of years of neglect by the landlord. Upon the appointment of a manager, £100,000 was added to the service charge for 2009 followed by a further £538,012 to be added to the proposed service charge for 2010. Whilst recognising the work was necessary and accepting the cost was reasonable, they argued it was not appropriate to carry out the work in such a short period of time and applied to a tribunal.

The tribunal remitted the case for rehearing by the leasehold valuation tribunal (LVT) but highlighted a number of factors that will be considered when determining whether costs are reasonable and therefore recoverable through a service charge:

• Tenants can be expected to plan for fluctuations in service charges but cannot be expected to make provisions for significant increases at short notice.
• The extent of the required works and the level of urgency required in addressing them.
• The views of the tenants.
• The effect on the total cost of works if phased.

Where individual tenants claim to be unable to pay their service charge, or at least any increase in their charge, they can put forward a case for hardship based on their current personal circumstances. However, any reduction or exemption offered is at the landlord’s discretion as even in extreme cases the LVT cannot alter a tenant’s contractual obligation to pay costs recoverable by the landlord for reasonable works, carried out at a reasonable cost and to a reasonable standard.

David Dixey is Holmes & Hills Solicitors' Landlord & Tenant Law specialist and advise landlords on a wide range of legal issues governing the landlord and tenant relationship.