Most tenants of residential premises benefit from protection against excessive service charges under the Landlord and Tenant Act 1985.
For the purposes of this legislation, "service charge" is an amount which is payable by a tenant of a property or part of, or in addition to, the rent. Service charge is payable directly or indirectly for services, repairs, maintenance, improvements, insurance or the landlord's management costs. The Lease will set out the basis of the service charge and this should always be the starting point if ever a dispute arises in respect of service charges.
There is case law (London Borough of Southwark v Paul and others  UKUT 0375 (LC)) which sets out that the landlord is able to recover indirect costs, such as rental, stationery, IT and salary costs incurred by part of the landlord's housing department in connection with providing services to the landlord's residential property portfolio.
Service charge disputes are governed by principles set out in common law (case law) and also statue. The statutory regime provides right for residential tenants and the same are set out below. The statutory framework requires charges to be reasonable. The question thereafter is what is reasonable? Tenants have the right to challenge service charges that they feel are unreasonable at the Tribunal. There is no definitive answer as to what is considered reasonable it will very much be case specific. There is useful guidance for tenants at http://www.lease-advice.org/advice-guide/service-charges-and-other-issues/#
If you have a dispute in relation to your service charge account and require assistance please do not hesitate to contact us. This guidance applies to residential leases, however if you have a service charge dispute in respect of a commercial lease we can offer support and guidance pursuant to the relevant legal practice.
- The landlord may only include costs in the service charge to the extent that they are reasonable -The amount of any advance payment must be reasonable. - If the lease entitles the landlord to demand an administration charge, the amount must be reasonable. - The landlord must consult with the tenants before entering into an agreement for more than 12 months or carrying out works above a certain threshold, unless the landlord obtains a dispensation. - Tenants do not have to pay service charges or administration charges unless the landlord includes key information in the demand for charges - Tenants do not have to pay service charges in respect of costs which were not demanded within the statutory deadline for issuing service charge demands. - Tenants have rights to obtain information about costs forming part of the service charge.