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The Commonhold and Leasehold Reform Act 2002 - Application to the Leasehold Valuation Tribunal
There is no statutory definition of what is 'reasonable'. Both landlords and leaseholders have a right to ask a Leasehold Valuation Tribunal (LVT) whether a charge, or a proposed charge, is reasonable. The Tribunal will consider the evidence presented and then make a determination on the matter.
An application may be made to the LVT whether or not the charge has already been paid. It can be in respect of costs already incurred for works, services or other charges or in respect of an estimate or budget. However, if the charges have been agreed by the parties or determined by a court or by post-dispute arbitration, no application to an LVT can be made.
The questions the LVT will ask are:
was it, or would it be, in the circumstances, reasonable for the costs to be incurred and, if so: were or will the works or services provided be to a reasonable standard? what are the landlord's procedures for assessing and controlling the costs, including supervision? The parties may present evidence on any of these matters and question the evidence given by the other party.
The LVT may also determine:
whether the service charge is payable under the lease; to whom; the date on which it may be payable; and the manner of payment (for example, if it may be paid by direct debit or standing order). Full details of the procedures and requirements for applying to the LVT are set out in our leaflets Application to the Leasehold Valuation Tribunal - Service Charges.
The law The Landlord and Tenant Act 1985 sets out the basic ground rules for service charges, defining what is considered a service charge, setting out requirements for reasonableness and for prior consultation of leaseholders.
Section 18 (1) of the Act (as amended by the Commonhold and Leasehold Reform Act 2002) defines a service charge as 'an amount payable by a tenant of a dwelling as part of or in addition to the rent
which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management; and the whole or part of which varies or may vary according to the relevant costs.' The items included in (1.) are those required to be reasonable and on which a LVT may make a determination of reasonableness.
Note that the provision does not overrule the lease. The item or service must still be included in the lease in order to be chargeable.
Demands for service charges
All demands for service charges must be in writing.
Normally the lease will provide for the service charge to be demanded in advance, but occasions will arise when the demands are issued after completion of the works or provision of the service. In these cases a statutory time limit applies: the landlord must issue the demand within 18 months of his incurring the cost. If the demand is provided later than this, the landlord cannot recover the costs at all, unless a notice is served during the 18 months stating that costs have been incurred and that the tenant will be required to contribute to them by payment of a service charge.
Administration charges
The provisions controlling administration charges commenced on 30th September 2003.
The 2002 Act introduced controls on administration charges. These are defined as 'an amount payable by a tenant as part of or in addition to rent, which is payable directly or indirectly for:
the grant of approvals under the lease or applications for such approvals; the provision of information or documents by or on behalf of the landlord; costs arising from non-payment of a sum due to the landlord; costs arising in connection with a breach (or alleged breach) of the lease.' Any administration charge levied by the landlord must be reasonable in order for the landlord to recover the charge.