In the recent case of Princes House Limited and another v Distinctive Clubs Limited which concerned a service charge dispute, Deputy Judge Jonathan Gaunt QC in his summing up excoriated the behaviour of the landlord and its managing agent in applying the service charge provisions contained in the lease and gave heart to any tenants seeking to challenge unfair service charges. The landlord had sought to recover approximately £700,000 as a contribution to repairs to the roof of the property from the tenant through the service charge. The tenant had counterclaimed on the basis that the landlord had not used all reasonable endeavours to repair the roof before the expiry of the tenant’s service charge cap.
The tenant was successful. The Court found that the landlord had long been aware of the dilapidated state of the roof and had not used all reasonable endeavours to repair it before the expiry of the service charge cap at considerably increased cost to the tenant.
The Judge stated that the managing agents had failed to consider whether the items being charged were properly designated as service charge items. The landlord had decided to include all the costs of its refurbishment project in its service charge claim which placed the onus on the tenant to challenge the service charge demand. The tenant had expected to pay a certain level of service charge and then found itself being charged four times more than expected without explanation.
The Judge added that tenants who agree to service charges based upon a surveyor’s estimate or an accountant’s certificate rely upon their professionalism and impartiality. Such reliance can be misplaced and often the surveyor or accountant acts in a partisan spirit, aiming to recover as much money as possible for the landlord employing them.
Finally the Judge implied there may be a good case for legislation if the conduct of landlords and managing agents does not improve.
The response of the Royal Institution of Chartered Surveyors and the British Property Federation is that landlords should follow the Code of Practice on Service Charges which is due to come into effect on 1 April 2007. The Code calls for transparent fees on a “not for profit, not for loss basis” and promotes fixed fees providing more certainty for tenants. Although not mandatory, the code represents best practice and should be followed unless there is a good reason for not following a particular recommendation contained in the Code. Tenants entering into new (and reviewed) leases may wish to insist that the code is incorporated.
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The information contained with this e-bulletin is necessarily of a general nature. Specific advice should always be sought for specific situations.
