All residential flat owners on long leases are faced with the usually bi-annual hurdle of paying service charges to their landlord but are they actually payable?
Leases contain clauses that permit the landlord to recover service charges in this manner on production of accounts certified by an accountant. However these accounts are prepared generally on an accruals basis and are of very little use to the tenant if they really wish to know when they are paying for an item, what they have paid and exactly how much was paid.
Existing legislation however permits the flat owner to force the landlord to produce a summary of costs incurred which also has to be certified by an accountant. This is enshrined in the Landlord and Tenant Act 1985, section 21. Failure of the landlord to produce such a detailed summary of costs to a private tenant is a criminal offence and can be prosecuted through the magistrates courts by the local housing authority. In practice, though, this is not enforced by many local authorities.
So how does this ‘reveal all’ mechanism work?
Firstly the tenant has to request such a summary of costs in writing either directly to the landlord or to the managing agent. The request can also be made on the tenant’s behalf by the secretary of the tenant’s association if desired. The summary has be to supplied to the tenant either one month after the request or within six months from the date of the end of the usual annual accounting period.
The summary must set out the costs in a way showing how they have been or will be reflected in demands for services charges and, in addition, shall summarise each of the following items, namely:
(a) any of the costs in respect of which no demand for payment was received by the landlord within the period
(b) any of the costs in respect of which:
(i) a demand for payment was so received, but
(ii) no payment was made by the landlord within that period, and
(a) any of the costs in respect of which:
(i) a demand for payment was so received, and
(ii) payment was made by the landlord within that period,
and specify the aggregate of any amounts received by the landlord down to the end of that period on account of service charges in respect of relevant dwellings and still standing to the credit of the tenants of those dwellings at the end of that period.
If the service charges are payable by the tenants of more than four dwellings, the summary shall be certified by a qualified accountant as:
(a) in his opinion a fair summary complying with the above requirements, and
(b) being sufficiently supported by accounts, receipts and other documents which have been produced to him.
Therefore a clear breakdown of the costs and when they were incurred and paid for has to be produced and certified by an accountant. This would make an inspection of the supporting accounts, receipts and other documents as provided by section 22 of the Landlord and Tenant Act 1985 a transparent exercise.
The actual text of the section is:-
21. Request for summary of relevant costs
(1) A tenant may require the landlord in writing to supply him with a written summary of the costs incurred;
(a) if the relevant accounts are made up for periods of twelve months, in the last such period ending not later than the date of the request, or
(b) if the accounts are not so made up, in the period of twelve months ending with the date of the request,
and which are relevant costs in relation to the service charges payable or demanded as payable in that or any other period.
(2) If the tenant is represented by a recognised tenants’ association and he consents, the request may be made by the secretary of the association instead of by the tenant and may then be for the supply of the summary to the secretary.
(3) A request is duly served on the landlord if it is served on;
(a) an agent of the landlord named as such in the rent book or similar document, or
(b) the person who receives the rent on behalf of the landlord;
and a person on whom a request is so served shall forward it as soon as may be to the landlord.
(4) The landlord shall comply with the request within one month of the request or within six months of the end of the period referred to in subsection (1)(a) or (b) whichever is the later.
(5) The summary shall state whether any of the costs relate to works in respect of which a grant has been or is to be paid under section 523 of the Housing Act 1985 (assistance for provision of separate service pipe for water supply) or any provision of Part I of the Housing Grants, Construction and Regeneration Act 1996 (grants, etc for renewal of private sector housing) or any corresponding earlier enactment, and set out the costs in a way showing how they have been or will be reflected in demands for services charges and, in addition, shall summarise each of the following items, namely:
(a) any of the costs in respect of which no demand for payment was received by the landlord within the period referred to in subsection (1)(a) or (b).
(b) any of the costs in respect of which:
(i) a demand for payment was so received, but
(ii) no payment was made by the landlord within that period, and
(a) any of the costs in respect of which:
(i) a demand for payment was so received, and
(ii) payment was made by the landlord within that period,
and specify the aggregate of any amounts received by the landlord down to the end of that period on account of service charges in respect of relevant dwellings and still standing to the credit of the tenants of those dwellings at the end of that period.
(5A) In subsection (5) “relevant dwelling” means a dwelling whose tenant is either:
(a) the person by or with the consent of whom the request was made, or
(b) a person whose obligations under the terms of his lease as regards contributing to relevant costs relate to the same costs as the corresponding obligations of the person mentioned in paragraph (a) above relate to.
(5B) The summary shall state whether any of the costs relate to works which are included in the external works specified in a group repair scheme, within the meaning of Chapter II of Pt I of the Housing Grants, Construction and Regeneration Act 1996 or any corresponding earlier enactment, in which the landlord participated or is participating as an assisted participant.
(6) If the service charges in relation to which the costs are relevant costs as mentioned in subsection (1) are payable by the tenants of more than four dwellings, the summary shall be certified by a qualified accountant as:
(a) in his opinion a fair summary complying with the requirements of subsection (5), and
(b) being sufficiently supported by accounts, receipts and other documents which have been produced to him.
Many residential landlord companies in London produce certified accounts that bear an accountants certificate with the accountant declaring that the attached accounts comply with section 21 of the Landlord and Tenant Act 1985 when the attached document is just a plain set of accounts produced in an accruals format with some misleading wording taken from the Act. Therefore the accountants ‘misdirect’ themselves.
If such accounts did in fact give all the required information as required by a summary of costs (and given your right to inspect all of the supporting documents i.e. everything that the accountant saw) would the accountant actually be able to certify them at all?
For advice on leasehold issues including enfranchisement contact us at Which Solicitor? – The Solicitors Information Service on 020 7483 4833.
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