Question 1

Are These Charges Legal?

Accepted Answer

Q: During a recent change of Development Manager (DM) and the need for a part-time Deputy DM to cover the transition gap until a new DM could be appointed, unusually high charges were set against our Service Charge account for the change-over period. When the Managing Agent (MA) was questioned about these charges some disturbing facts were revealed, for which we now seek your comments. Before replacement, the out-going DM went on to sick leave. A Deputy DM was then employed on a ‘zero-hours contract’ basis, working initially for a few hours a week only, increasing to 25 hrs/wk before the new DM took over. During this time the Deputy DM was paid: (a) An hourly rate as a PAYE employee of the MA. (b) Travelling expenses to and from our block by car each day. (c) Holiday pay at an enhanced rate 15 per cent above the minimum national entitlement for full-time employment. The enhancement was in recognition of his ‘valuable services. In addition, the records show two further entries of much interest: (d) Employer’s NI Contribution’. The accounts of the full-time DM show similar entries. (e) Accommodation Allowance. This is compensation to the DM for income tax paid on a benefit in kind, namely the DM’s flat Whereas the residents can accept that items, (a), (b) and (c) are probably legitimate charges to the Service Charge account, albeit rather excessive, items (d) and (e) seem to be unjustified. The MA employs the DMs not the residents and Income Tax liabilities of the DMs should not be transferred to residents. Your comments on the above items and particularly on the legality of items (d) and (e) would be much appreciated. FPRA Committee Member Amanda Gourlay replies: I have read and considered the question asked, and read the lease. This is a difficult question. The lease envisages that a flat will be available for the occupation of a warden - that much is clear from the maintenance obligations of the landlord, which include an obligation to maintain the Warden’s flat, the assistant Warden’s accommodation and office. It would also appear, from a reading of clauses 3(2) and 5(10) of the lease that the cost of maintaining the services of a warden are recoverable from the lessees. The questioner considers that the managing agent employs the development managers, not the residents, and that income tax liabilities of the development managers should not be transferred to the residents. I am not an expert in tax law. It seems to me however from a landlord and tenant perspective that the lease allows for the landlord to charge to the lessees the cost of maintaining the services of a warden. The managing agents’ contract and fee may include the provision of a warden. If it does, in my opinion nothing further should be charged to the service charge. If however the managing agents’ contract and fee do not do so, I think that the landlord is entitled to charge to the lessees such reasonable costs as it incurs in relation to its maintenance of the warden service. If the amount charged for the temporary warden was unreasonably high because of the accommodation allowance, or, if all of the temporary warden’s NI/accommodation allowance was charged to you, even though the temporary warden worked on several estates. that allowance may be susceptible to challenge. In summary: the lease allows the landlord to recover the costs of a warden. If the managing agent provides the warden under its contract, the cost of doing so may be wrapped up in its fee. In that event it seems to me that nothing further can be charged to the lessees. If the cost of providing the warden is not wrapped up in the managing agents' fee but is a cost to the landlord, it seems to me that the landlord is probably entitled to charge the gross cost to the lessees, subject to the normal section 19 reasonableness test as noted above. [Submitted June 2016]

Question 2

Are These Charges Legal?

Accepted Answer

Q: During a recent change of Development Manager (DM) and the need for a part-time Deputy DM to cover the transition gap until a new DM could be appointed, unusually high charges were set against our Service Charge account for the change-over period. When the Managing Agent (MA) was questioned about these charges some disturbing facts were revealed, for which we now seek your comments. Before replacement, the out-going DM went on to sick leave. A Deputy DM was then employed on a ‘zero-hours contract’ basis, working initially for a few hours a week only, increasing to 25 hrs/wk before the new DM took over. During this time the Deputy DM was paid: (a) An hourly rate as a PAYE employee of the MA. (b) Travelling expenses to and from our block by car each day. (c) Holiday pay at an enhanced rate 15 per cent above the minimum national entitlement for full-time employment. The enhancement was in recognition of his ‘valuable services. In addition, the records show two further entries of much interest: (d) Employer’s NI Contribution’. The accounts of the full-time DM show similar entries. (e) Accommodation Allowance. This is compensation to the DM for income tax paid on a benefit in kind, namely the DM’s flat Whereas the residents can accept that items, (a), (b) and (c) are probably legitimate charges to the Service Charge account, albeit rather excessive, items (d) and (e) seem to be unjustified. The MA employs the DMs not the residents and Income Tax liabilities of the DMs should not be transferred to residents. Your comments on the above items and particularly on the legality of items (d) and (e) would be much appreciated. FPRA Committee Member Amanda Gourlay replies: I have read and considered the question asked, and read the lease. This is a difficult question. The lease envisages that a flat will be available for the occupation of a warden - that much is clear from the maintenance obligations of the landlord, which include an obligation to maintain the Warden’s flat, the assistant Warden’s accommodation and office. It would also appear, from a reading of clauses 3(2) and 5(10) of the lease that the cost of maintaining the services of a warden are recoverable from the lessees. The questioner considers that the managing agent employs the development managers, not the residents, and that income tax liabilities of the development managers should not be transferred to the residents. I am not an expert in tax law. It seems to me however from a landlord and tenant perspective that the lease allows for the landlord to charge to the lessees the cost of maintaining the services of a warden. The managing agents’ contract and fee may include the provision of a warden. If it does, in my opinion nothing further should be charged to the service charge. If however the managing agents’ contract and fee do not do so, I think that the landlord is entitled to charge to the lessees such reasonable costs as it incurs in relation to its maintenance of the warden service. If the amount charged for the temporary warden was unreasonably high because of the accommodation allowance, or, if all of the temporary warden’s NI/accommodation allowance was charged to you, even though the temporary warden worked on several estates. that allowance may be susceptible to challenge. In summary: the lease allows the landlord to recover the costs of a warden. If the managing agent provides the warden under its contract, the cost of doing so may be wrapped up in its fee. In that event it seems to me that nothing further can be charged to the lessees. If the cost of providing the warden is not wrapped up in the managing agents' fee but is a cost to the landlord, it seems to me that the landlord is probably entitled to charge the gross cost to the lessees, subject to the normal section 19 reasonableness test as noted above. [Submitted June 2016]

Are These Charges Legal?

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