Q: We had a meeting last night with our property manager and it is clear they believe, rightly or wrongly, that the Landlord has the right to use the service charge income to pay for proposed work and confirmed that this is their understanding of all the leases. Unfortunately I only have mine, but suspect that at least several others will be the same.
In previous correspondence you appear to be regarding the service charge in my lease as fixed rather than variable. I had previously been advised that because the £620 per month charge is subject to a variable annual adjustment of 3 per cent or RPI index, whichever is the greater, the charge would be considered a variable service charge.
Does this, in fact, make any difference to your “good news” interpretation of my lease?
FPRA Hon Consultant Roger Hardwick replies:
The definition of “service charge” (which is relevant for the purpose of determining which charges fall within the scope of the Landlord and Tenant Act 1985, which contains, among other things, the reasonableness limitation, the obligation to consult, the obligation to include a summary of rights with demands etc.) can be found in s.18 of the LTA 1985:
“In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent—
(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and
(b) the whole or part of which varies or may vary according to the relevant costs.”
The 3 per cent inflation adjustment does not bring the service charge within the scope of s.18. The charge has to vary “according to the relevant costs”. The definition of “relevant costs” can be found at s.18(2): “…costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable”. The “Service Charge” in this case may vary according to inflation. It does not vary “according to the relevant costs”. It is, therefore, not a service charge within s.18 of the LTA 1985.
There is authority for this. In Coventry City Council v Cole (1993) 25 H.L.R. 555, the Court of Appeal found that charges which vary in accordance with a published index such as the RPI or an index of building costs do not fall within the definition of s.18. The landlord may use the fixed service charge income he has collected to pay for the works, but he cannot charge the leaseholders directly for a proportion of the actual cost of the works.
[Submitted November 2016]