Service charges consultation obligations

Posted: 30th May 2018

Block of flatsTenants are legally entitled to be consulted before their landlords sign agreements with their managing agents or others that extend beyond a 12-month period and result in the levying of service charges. As a Court of Appeal case showed, failure to comply with such requirements can have extremely serious consequences.

The case concerned an urban block of flats occupied by over 150 leaseholders. The property’s freeholder launched proceedings against one tenant in order to recover more than £24,000 in alleged arrears of service charges. Part of that related to the tenant’s contribution to fees payable by the freeholder to its managing agent.

That portion of the service charges was, however, disallowed by the First-tier Tribunal on the basis that the agreement between the freeholder and its agent was a qualifying long-term agreement – within the meaning of Section 20ZA(2) of the Landlord and Tenant Act 1985 – to which mandatory consultation requirements applied. There was no dispute that those requirements had not been met. The freeholder’s challenge to that ruling was later rejected by the Upper Tribunal.

In dismissing the freeholder’s appeal against the latter decision, the Court of Appeal noted that the relevant agreement stated that it would last for one year. However, it did not stop there, also providing that the agreement would continue thereafter. On its true interpretation, the agreement introduced a mandatory requirement that it would continue beyond the initial 12 months for an unspecified further period.

In those circumstances, the Court found that the agreement was indeed a qualifying long-term agreement to which the consultation requirements applied. The failure to comply with those requirements meant that, by operation of the Service Charges (Consultation Requirements) (England) Regulations 2003, the tenant’s contribution to the managing agent’s fees was capped at £100 per annum.