Question 1

Service Charge

Accepted Answer

Q: Please could I ask your advice for suggested wording when making a request for payment, for example for the annual service charge or ground rent. Presently we just issue a letter (and Service Charge Notice if applicable) requesting payment at their earliest convenience but have had on occasion issues with late payment. Are we able to state a time frame for payment and also a possible penalty for late payment? Please could you also confirm if we send the official Service Charges Notice for Ground Rent payment and Building Insurance payment? FPRA Committee Member Amanda Gourlay replies: Service charges There is no prescribed form for service charge demands, but a demand, whatever its form, must include the following: 1) The landlord’s name and address, even if not in England and Wales, for the purposes of sections 47 of the Landlord and Tenant Act 1987; 2) An address in England and Wales where notices can be served on the landlord, if the landlord’s address is not in England and Wales – section 48 Landlord and Tenant Act 1987. As your enquiry suggests, the summary of tenant’s rights and obligations must also accompany the demand. The sample lease which accompanied the enquiry provides that on-account service charge payments are due on 24 June and 25 December each year. Those are therefore the dates on which payment is due. There is however no time frame for the payment of the balancing charges which are payable under the lease. In that event, a reasonable period should be allowed for payment. The landlord may consider that twenty-eight days would be such a reasonable period, although much may depend on the amount of money demanded. Insurance is treated separately in the lease. Fortunately the lease does state the date on which payment is due, that being either the first of either 24 June or 25 December immediately following payment by the landlord to the insurer. Ground rent Section 166 of the Commonhold and Leasehold Reform Act 2002 obliges a landlord to send a demand for ground rent in a specified form. The form is contained in the Landlord and Tenant (Notice of Rent) (England) Regulations 2004/3096, a copy of which I attach. Time frames and penalties A landlord is only entitled to demand payment at the times provided for in the lease, and can only impose a penalty if the lease permits. The on-account service charge demands are due on specific dates. If a demand has been raised, but no payment made by the date required in the lease, the landlord is entitled to sue for the rent. As to the balancing charges: the landlord is still entitled to sue for the amount due, but again after leaving a reasonable period for payment. It is generally accepted that the most effective method of enforcing liability to pay ground rent or service charges is by taking action to forfeit a lease. In the sample lease that I have seen, the landlord is entitled to take that action if the lessee fails to make payment within 21 days of the date when the payment is due. There are however some statutory restrictions to the exercise of a right to forfeit. Advice should be taken in each case, particularly in relation to the waiver of the right. It is important to bear in mind that small amounts of ground rent unpaid for short periods cannot be subject to forfeiture (see s.167 Commonhold and Leasehold Reform Act 2002). As to service charges, a landlord must obtain a determination of the amount of the service charge that is payable (see s.81 Housing Act 1996). It must then serve a notice under section 146 of the Law of Property Act 1925. Only if that notice is unsatisfied can it issue a claim for possession on the ground of forfeiture. A residential lease should not be forfeit by the landlord simply walking into the flat and taking back possession because of the risk of contravening section 6 of the Criminal Law Act 1977. Penalties The management company should bear in mind that any charges to the lessees for late payment should not be by way of punishment, but a direct reflection of the costs incurred by the management company in enforcing the covenant to pay. The lease contains no obligation on the lessee to pay interest in the event of late payment. It is arguable that any extra expense to which the management company is put by reason of late payment may be recoverable under the lease as “administrative expenses” or as “such expense as is reasonably required to enable them to carry out their duties [under the lease] to obtain the services of any agent contractor accountant solicitor or any person or body”. I have assumed that by official “Service Charges Notice”, you have in mind the summary of tenant’s rights and obligations. That notice does not need to be served with ground rent demands, which have their own prescribed form as noted above. Insurance falls within the meaning of service charge for the purposes of section 18 of the Landlord and Tenant Act 1985. It is therefore incumbent upon the landlord, who bears the burden of insuring and is entitled to collect that cost from the lessees, to serve the notice of tenant’s rights and obligations with the demand for payment. [Submitted June 2016]

Question 2

Service Charge

Accepted Answer

Q: Please could I ask your advice for suggested wording when making a request for payment, for example for the annual service charge or ground rent. Presently we just issue a letter (and Service Charge Notice if applicable) requesting payment at their earliest convenience but have had on occasion issues with late payment. Are we able to state a time frame for payment and also a possible penalty for late payment? Please could you also confirm if we send the official Service Charges Notice for Ground Rent payment and Building Insurance payment? FPRA Committee Member Amanda Gourlay replies: Service charges There is no prescribed form for service charge demands, but a demand, whatever its form, must include the following: 1) The landlord’s name and address, even if not in England and Wales, for the purposes of sections 47 of the Landlord and Tenant Act 1987; 2) An address in England and Wales where notices can be served on the landlord, if the landlord’s address is not in England and Wales – section 48 Landlord and Tenant Act 1987. As your enquiry suggests, the summary of tenant’s rights and obligations must also accompany the demand. The sample lease which accompanied the enquiry provides that on-account service charge payments are due on 24 June and 25 December each year. Those are therefore the dates on which payment is due. There is however no time frame for the payment of the balancing charges which are payable under the lease. In that event, a reasonable period should be allowed for payment. The landlord may consider that twenty-eight days would be such a reasonable period, although much may depend on the amount of money demanded. Insurance is treated separately in the lease. Fortunately the lease does state the date on which payment is due, that being either the first of either 24 June or 25 December immediately following payment by the landlord to the insurer. Ground rent Section 166 of the Commonhold and Leasehold Reform Act 2002 obliges a landlord to send a demand for ground rent in a specified form. The form is contained in the Landlord and Tenant (Notice of Rent) (England) Regulations 2004/3096, a copy of which I attach. Time frames and penalties A landlord is only entitled to demand payment at the times provided for in the lease, and can only impose a penalty if the lease permits. The on-account service charge demands are due on specific dates. If a demand has been raised, but no payment made by the date required in the lease, the landlord is entitled to sue for the rent. As to the balancing charges: the landlord is still entitled to sue for the amount due, but again after leaving a reasonable period for payment. It is generally accepted that the most effective method of enforcing liability to pay ground rent or service charges is by taking action to forfeit a lease. In the sample lease that I have seen, the landlord is entitled to take that action if the lessee fails to make payment within 21 days of the date when the payment is due. There are however some statutory restrictions to the exercise of a right to forfeit. Advice should be taken in each case, particularly in relation to the waiver of the right. It is important to bear in mind that small amounts of ground rent unpaid for short periods cannot be subject to forfeiture (see s.167 Commonhold and Leasehold Reform Act 2002). As to service charges, a landlord must obtain a determination of the amount of the service charge that is payable (see s.81 Housing Act 1996). It must then serve a notice under section 146 of the Law of Property Act 1925. Only if that notice is unsatisfied can it issue a claim for possession on the ground of forfeiture. A residential lease should not be forfeit by the landlord simply walking into the flat and taking back possession because of the risk of contravening section 6 of the Criminal Law Act 1977. Penalties The management company should bear in mind that any charges to the lessees for late payment should not be by way of punishment, but a direct reflection of the costs incurred by the management company in enforcing the covenant to pay. The lease contains no obligation on the lessee to pay interest in the event of late payment. It is arguable that any extra expense to which the management company is put by reason of late payment may be recoverable under the lease as “administrative expenses” or as “such expense as is reasonably required to enable them to carry out their duties [under the lease] to obtain the services of any agent contractor accountant solicitor or any person or body”. I have assumed that by official “Service Charges Notice”, you have in mind the summary of tenant’s rights and obligations. That notice does not need to be served with ground rent demands, which have their own prescribed form as noted above. Insurance falls within the meaning of service charge for the purposes of section 18 of the Landlord and Tenant Act 1985. It is therefore incumbent upon the landlord, who bears the burden of insuring and is entitled to collect that cost from the lessees, to serve the notice of tenant’s rights and obligations with the demand for payment. [Submitted June 2016]

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