The Service Charge Dispute and the Withheld Consent
You manage a mixed-use block: ground-floor retail units and four flats above. The service charge year runs 1 January to 31 December. The 2023 accounts were issued late, in September 2024, showing a 22% overspend against the budget, largely due to emergency roof repairs (£48,000) that were not in the budget. The lease requires the landlord to consult leaseholders before incurring 'qualifying works' above a threshold, and to provide certified accounts within six months of the year end. The retail tenant in Unit A, who pays 40% of the total service charge, has withheld the 2023 balancing charge (£9,800) and says it will not pay until it has 'seen the invoices and the consultation'. The landlord wants you to issue a demand for the full amount plus interest and to refuse to provide invoices, saying they are 'commercially sensitive'.
A flat owner has also asked for consent to underlet her flat, and the landlord has told you to refuse because she is 'the one making all the noise about the roof'.
1. Advise on the service charge: can the landlord demand the balancing charge and refuse the invoices, and what are the risks?
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Demand: The landlord can demand the balancing charge only if the lease permits it and the accounts are properly certified. But there are real risks:
- Late accounts: if the lease requires certified accounts within six months of the year end, the 2023 accounts (due by 30 June 2024) were late. That may not extinguish the charge, but it weakens the landlord's position and may entitle the tenant to challenge or delay.
- Consultation: the £48,000 roof works look like 'qualifying works' above the consultation threshold. If the landlord failed to consult, the leaseholders may be entitled to a limitation of the service charge to the statutory cap (broadly, the amount that would have been payable had consultation occurred - often capped at £250 per leaseholder for the relevant works under the statutory consultation regime, subject to the lease and any dispensation). The landlord should consider applying for dispensation from consultation if it can show it was reasonable (e.g. emergency).
- Invoices: the tenant has a right to inspect supporting documents - accounts, receipts, invoices - under the lease and, for dwellings, under the statutory service charge regime. 'Commercially sensitive' is not a valid ground to refuse inspection. Refusing will strengthen the tenant's position and may amount to a breach.
Recommendation: provide the accounts and a redacted set of invoices/receipts (redact genuinely confidential third-party information, not the whole document), explain the consultation position, and only then pursue the balancing charge. Interest can be charged only if the lease provides for it and the sum is properly due.
2. Advise on the flat owner's request to underlet and the landlord's instruction to refuse.
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The landlord's stated reason - that she is 'making noise about the roof' - is not a proper ground for refusal. If the lease permits underletting with consent 'not to be unreasonably withheld', refusing in retaliation for a legitimate service charge challenge is likely to be unreasonable and could expose the landlord to a claim (and, for a dwelling, to the statutory protections on consent). It also looks like retaliation, which is precisely the kind of conduct a tribunal or court would criticise.
Proper approach:
- Check the lease: does it permit underletting? On what terms (whole/part, term length, consent standard)?
- Ask for the proposed undertenant's references and the proposed underlease terms.
- Consent can be given subject to reasonable conditions (e.g. rent deposit, deed of covenant, compliance with the lease).
- Refuse only on proper grounds (e.g. poor covenant strength, breach of the lease's underletting terms), and give reasons in writing within a reasonable time.
Advise the landlord in writing that retaliation is not a lawful basis for refusal. If the landlord insists, record the advice and consider whether you can continue to act on that instruction. The service charge dispute and the consent request should be kept separate.