Landlord and Tenant Law
Service Charges: What can a Landlord do if the Service Charge Contributions for the Leaseholders do not add up to 100%?
If you are a Landlord you will know you are normally able to recover the costs of providing services to the property through the service charge. Such services include maintenance, repair and insurance.
A Tenants’ Lease will set out how much a Tenant has to contribute towards the service charge. A Tenants proportion is often expressed in percentage terms. Sometimes when each Tenants proportion is added together it totals less than 100%. This means you cannot recover 100% of what you have paid out. The consequence is that you will have to bear the shortfall.
Can you vary the Lease?
If all the Tenants agree to change their proportions then you can vary the Leases by agreement by each of the Tenants entering into a formal Deed of Variation which is then registered at the Land Registry. If however not all the Tenants agree to the variation then you can make an application to the Leasehold Valuation Tribunal (LVT) for the Leases to be varied in order that the proportions add up to 100%.
Can the Lease Variation be backdated?
In a recent case called Brickfield Properties Ltd v Paul Botten (2013) the LVT varied the Leases to allow the Landlord to recover 100% of the service charge and allowed the Landlord to back date this. The Landlord owned seven blocks of flats. The Tenants of one block of flats exercised their right to collective enfranchisement which is a process whereby the Tenants can force the freeholder to sell the property to them. Accordingly the Landlord then owned only six blocks and the proportions paid by the remaining six blocks added up to less than 100%. The LVT exercised its jurisdiction and varied the Leases to allow the Landlord to recover 100% of the service charge from the remaining Tenants. The LVT restated the fact that such a variation would not be granted if it would be likely to substantially prejudice the Tenants. The LVT backdated the variation to the date of transfer of the block of flats to the Tenants (i.e. the date when the Landlord started to be out of pocket).