Landlords - beware service charge demands

A recent case acts as a reminder to landlords that they cannot simply pass on service charge demands to their under tenants without first establishing that those sums are 'reasonable'.

A recent case acts as a reminder to landlords that they cannot simply pass on service charge demands to their under tenants without first establishing that those sums are 'reasonable'.

The freeholder of a building in Mayfair in London had the obligation to maintain the fabric of a building that was let out as a mixed use premises containing residential and commercial units. The landlord also had the right to demand a sum to be put into a 'sinking fund' which is a fund which is amassed over time for use when major items of expenditure arise.

The freeholder passed these costs on to the landlord who, in turn passed them on to their under tenants. Once of the under tenants objected to the sums demanded and provided evidence to establish that only minor works to the building would be required over the next 15 to 20 years and general re-decoration could be recovered under the standard service charge provisions. The documentation presented by both parties was confusing and poorly presented to the Upper Tribunal but the phrase of relevance from the Tribunal is:

'In our view it is not sufficient for the landlord merely to say: 'I have paid this sum to the freeholder and so it is reasonable le for me to recover it from you through the service charge'.

In such a  case, where a tenant raises a question regarding the reasonableness of the amount claimed and where the tenant (as here) produces materials suggesting the amount claimed may not be reasonable, then it will be for the landlord to justify the reasonableness of what is claimed.'

Landlords must not simply pass on service charge costs demanded of them to their tenants without first establishing that those sums are reasonable. If the landlord does not know what the costs are for, they should request this information.

It is also important for landlords to check the wording of the under lease to ensure that they are able to recover the items.

Case: Syed Balkhi v Southern Land Securities Limited 2016 UKUT 0239 (LC)

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