Many leaseholders feel that service charges represent poor value for money, while others disagree with the way their service charge money is spent. As a result, many leaseholders decide to withhold payment, but this is a highly risky strategy which is not usually advisable.
There are only a handful of situations where a leaseholder is absolutely entitled to withhold payment of service charges:
- Where the landlord has failed to demand the service charges in accordance with the terms of the lease
- Where the landlord has not complied with s.21B of the Landlord and Tenant Act 1985 by failing to accompany the demand with a summary of the leaseholder’s rights and duties
- Where the landlord’s name and address do not appear on the service charge demand in accordance with s.47 of the Landlord and Tenant Act 1987
- Where the costs the landlord is trying to recover relate to expenditure incurred more than 18 months prior to the demand under s.20B of the Landlord and Tenant Act 1985
In every other situation the landlord may argue that the leaseholder is in breach of their lease if they withhold payment. The landlord may have a point, especially if the amount the leaseholder is withholding is disproportionate to the leaseholder’s complaints.
For example, imagine the landlord needs to spend money on insuring the building, on painting the communal areas and on electricity for the hallway. If the leaseholder’s complaint is that the cost of providing electricity to the hall is too high, they would not be justified in also withholding their contribution towards insurance and painting.
One circumstance in which a leaseholder does have a right to withhold payment of service charge is where the landlord has breached their obligations under the lease and the leaseholder has suffered damage as a result.
An obvious example would be where the landlord has failed to keep the roof of the building in good repair, in breach of an obligation in the lease, and rain water has damaged the leaseholder’s floor. The leaseholder would be entitled to offset the damage against service charges demanded by the landlord, particularly in respect of repairing the roof.
It is also worth leaseholders noting that the payment of a service charge does not equate to an admission that it is payable or that it is reasonable. Even after a service charge has been paid, the leaseholder can still challenge their obligation to have paid it.