Service Charges: Calculation, Apportionment, Reasonableness and Recovery
The statutory scaffolding
A service charge is defined in s.18 Landlord and Tenant Act 1985 as an amount payable by a tenant, as part of or in addition to rent, for services, repairs, maintenance, improvements, insurance or management, where the amount varies by reference to costs incurred. Section 19 imposes the central test: costs must be reasonably incurred and works or services must be of a reasonable standard. Section 19(2) limits recovery of costs incurred before the lease was granted.
Candidates must know the recovery machinery: s.20 consultation for qualifying works (threshold £250 per tenant) and qualifying long-term agreements (£100 per tenant per year); s.20B (costs incurred more than 18 months before a demand cannot be recovered unless the tenant was notified within that period); s.21 (summary of costs, inspection rights, accountant's certificate where more than four dwellings); s.21B (a tenant may withhold the whole service charge until the summary is provided); s.20C (litigation costs cannot be recovered through the service charge unless the FTT so orders); and s.27A (FTT jurisdiction to decide payability and reasonableness). Apportionment must follow the lease - fixed proportions, floor area or equal shares.
Traps: confusing the two consultation thresholds; arguing "unreasonable" when the real point is "not payable under the lease"; assuming a balancing charge is unrecoverable merely because it is large; missing the short limitation periods (28 days for administration charges under Schedule 11 CLRA 2002; generally six months from the demand for service charges).
Worked example: eight flats, equal shares. Repairs cost £1,600 - £200 each, below £250, so no s.20 consultation is required. If the works cost £2,400 (£300 each), consultation applies to the whole cost; a consultation breach caps recovery at £250 per tenant, so only £2,000 of the £2,400 can be recovered.