There is a significant difference in the law relating to service charges on residential property as compared with commercial property. The law on service charges for residential property largely deals with long leases, usually of flats and is regulated by the Landlord and Tenant Act 1985.
A landlord wishing to recover service charges on a residential property must serve the tenant with a summary of rights and obligations and include the name and address of the landlord, not just the landlord’s agent.
If the landlord has to carry out major works, the procedure under section 20 of the Landlord and Tenant Act 1985 must be followed otherwise the tenant’s share of the cost of the works will be restricted.
If a tenant fails to pay service charges, the landlord may issue a claim in the County Court Money Claims Centre or apply to the First Tier Tribunal (Property Chamber). As with rent claims, landlords ought to be aware of the Pre-Action Protocol for Debt Claims which came into force on 1 October 2017. The Protocol applies to any business (including sole traders) claiming payment of a debt from an individual, even if that individual is trading as a sole trader. As the Protocol does not exclude debts claimed pursuant to a lease, landlords are advised to consider whether it applies before issuing a money claim For further information, please see our Debt Recovery page.
If the tenant disputes the service charge or part of it, the tenant has the right to apply to the tribunal for them to decide whether the service charge is reasonable.
It is common for a long lease to contain a clause which provides that the tenant agrees to pay the landlord’s costs (including legal fees and surveyor’s fees) in contemplation of a notice threatening forfeiture. This is a useful tool for landlords who may be restricted in recovering their costs from the tenant in a court or tribunal.
Commercial tenants do not have the same level of protection. When they take on a lease, they will have the chance to negotiate (unlike most residential tenants) and the service charge provisions should be scrutinised and enquiries made of the landlord as to what services would be provided and the estimated cost. A commercial tenant will have much less opportunity to challenge service charges, if those charges are provided within the strict terms of the lease.