Lessees can be asked to pay significant amounts of money towards major works to their buildings, the costs likely incurred in the course of carrying out repairs. Some leases, however, allow a landlord to recover the cost of improvements through the service charge, which can add to an already hefty bill.
The recent Court of Appeal decision in London Borough of Hounslow v Waaler  EWCA Civ 45 concerned this very situation where a leaseholder was asked to pay a bill of £55,195.95 towards major works which included an element of improvement to the building.
A leaseholder may challenge their service charge when they can show that their landlord has not passed on reasonably incurred costs, but there has not been any law to require a landlord to choose the cheapest option possible.
The decision in Waaler requires a landlord, when carrying out improvements and passing the cost of doing so to their leaseholders through the service charge, to take account of three factors:
- The interests of the lessees as long leaseholders of flats in the building;
- The views of the lessees and whether they want to have the improvements carried out or not; and
- The financial impact of the improvement works on the lessees
This is an important decision which now places an obligation on a landlord to carefully consider the costs of improving their building when those costs will be paid through a service charge. Landlords might consider applying to the First-tier Tribunal (Property Chamber) in advance of commencing the works for a determination that service charges they will demand will be reasonable. This can save considerable costs by eliminating the possibility of a dispute after the works have been done.
It can be difficult to assess whether a challenge against service charges will be successful. Our specialist team of solicitors are ready to advise on this tricky area of law.
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