Balancing charges after an unbudgeted lift repair
Flats 1–30 in a purpose-built block pay service charges on a 1 April–31 March year. The estimate for the year just ended was £1,400 per flat. The actual expenditure was £2,050 per flat, driven by a £24,000 lift motor replacement that was not budgeted for and a £6,000 rise in the block insurance premium. The managing agent issued balancing charges in June, two months after the year end. Flat 12 was sold to Mr Rahman on 15 January, during the year. He says he should not pay for the lift repair because it happened before he bought. Another leaseholder has asked for a summary of rights and the lift invoice. The lease requires a 'fair proportion' of costs and permits reserve funds, but no reserve has been collected. The lift failed suddenly and was out of service for nine days.
1. Can the landlord recover the full £24,000 lift cost through the balancing charges when no s.20 consultation was carried out? What should the agent do now?
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Is s.20 engaged? The lift motor replacement is qualifying works. Each flat's contribution (£24,000 ÷ 30 = £800) exceeds the £250 threshold, so the s.20 consultation requirements applied.
Effect of no consultation. Without consultation (or dispensation), the landlord can recover only £250 per leaseholder for those works, i.e. £7,500 in total, unless the FTT grants dispensation under s.20ZA. Urgency does not automatically exempt the works; it is a factor in a dispensation application.
What to do now. Gather evidence of the lift failure, the risk to residents, the contractors' quotes and why consultation was not practicable. Apply to the FTT promptly for dispensation, notify leaseholders, and do not simply demand the full amount. Consider absorbing or spreading any unrecovered balance. Check reasonableness under s.19 and whether the insurance premium increase is supported by the policy schedule.
Conclusion. The full £24,000 is not automatically recoverable; the default cap applies until dispensation is obtained.
2. Is Mr Rahman liable for the balancing charge covering the period before his purchase? Explain.
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General rule. Service charge liability runs with the lease. The person who is the registered leaseholder when a valid demand is served is liable, even if some costs relate to an earlier period, unless the lease says otherwise.
Application. Mr Rahman is liable for the balancing charge if the demand was served on him after completion. His remedy is usually against his seller: the completion statement should have apportioned service charges and allowed for the balancing charge. The agent should not split the demand without a lease basis.
Practical step. Provide Mr Rahman with the service charge account, the date of demand and the lease clause; direct him to his conveyancer. He can still challenge reasonableness at the FTT.
3. What must the agent provide in response to the request for a summary of rights and the lift invoice, and what other documents may be inspected?
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Summary of rights. A s.21A summary of rights must accompany the service charge demand (or be supplied on request). The lift invoice should be provided, or made available for inspection.
Inspection. Under s.22 LTA 1985 the leaseholder can require reasonable facilities to inspect documents relevant to the service charge - invoices, receipts, contracts, accounts and correspondence. The landlord must comply within 21 days. Personal data can be redacted; a reasonable copying charge may be made.
Best practice. Provide a clear reconciliation: budget versus actual, explanation of the £24,000 and £6,000 items, and the consultation position. If documents are withheld, the leaseholder can apply to the FTT.