Annual Service Charge - Litigation From Management Company

[Thr33]

Hello,

I own a leasehold flat (with share of the freehold) in which the annual service charge is collected by a management company on behalf of the residents association. This year the service charge rose from £1,500 to £3,000 for no apparent reason. It was due to be paid at the start of October. I questioned this amount and was not given a clear reason as to why the service charge had risen so dramatically. The service charge is due yearly and in one (full) payment. I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

Fast forward to 18th December and I received a letter from a solicitor demanding nearly £4,000 by 5th January (the full service charge plus legal fees and interest). On this date there will be more legal fees and they will attempt to take legal action to force forfeiture of my lease and eviction. The letter is extremely aggressive and came out of the blue as the management company gave no warning and I thought we were in discussion about paying the fees. Having written this post it appears that I am not telling the whole truth as it is so preposterous but I assure you this is what is happening.

I’m not sure how to proceed and I am extremely worried about all this. I emailed the management company and the solicitor immediately on receipt of the solicitor’s letter on 18th Dec saying there must be some mistake but have not received a reply from either.

[Jon39]

Thr33 said:

Hello,

I own a leasehold flat (with share of the freehold) in which the annual service charge is collected by a management company on behalf of the residents association. This year the service charge rose from £1,500 to £3,000 for no apparent reason. It was due to be paid at the start of October. I questioned this amount and was not given a clear reason as to why the service charge had risen so dramatically. The service charge is due yearly and in one (full) payment. I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

Fast forward to 18th December and I received a letter from a solicitor demanding nearly £4,000 by 5th January (the full service charge plus legal fees and interest). On this date there will be more legal fees and they will attempt to take legal action to force forfeiture of my lease and eviction. The letter is extremely aggressive and came out of the blue as the management company gave no warning and I thought we were in discussion about paying the fees. Having written this post it appears that I am not telling the whole truth as it is so preposterous but I assure you this is what is happening.

I’m not sure how to proceed and I am extremely worried about all this. I emailed the management company and the solicitor immediately on receipt of the solicitor’s letter on 18th Dec saying there must be some mistake but have not received a reply from either.

My only experience of a managing agent was decades ago, when living in a new block of leasehold flats.
The managing agent was a 'friend' of, and appointed by the property builder. The probably common arrangement, was that the more the managing agent decided to spend, then the more he earned from his percentage fee. Good work if you can get it!

I studied the wording of my lease agreement and discovered that there was no contractual condition about who was to be the appointed managing agent. The residents' association decided to oversee the routine management themselves, which introduced control over expenditure and also immediately eliminated the percentage fee. The Association address was made a cupboard under the stairs with a letter box, because this would provide continuity when the volunteer officials changed.

The managing agent was summoned to attend a meeting with the residents association committee and he was promptly sacked. He arrived in a tipsy state, so how much he understood was unclear, but we never heard from him again.

You refer to 'a leasehold flat (with share of the freehold).
Presumably therefore the residents (leaseholders) have already purchased the freehold. Therefore as freeholders, they must now be in control of who does the day to day management, of the building and the common areas.

So what we did, might be the solution to your soaring service charges.

[Rough101]

You are of course due a breakdown.

I still do the odd bit for managing agents, and unfortunately for flats, lots of them have been sacrificing safety inspections and maintenance to keep costs down, but post Grenfell, no one wants to take the risk of skipping these or doing compliance on the cheap.

I suspect if you do get a breakdown there will be a load of fire door, smoke ventilation and emergency lighting stuff in there at much higher rates than before, including mopping up backlog stuff with contractors who have hiked rates to cope with demand.

Although……I also suspect they may be taking the piss, as some do, they are also prone to scoping things incorrectly and paying too much and reacting to residents moans demands, giving rise to call out fees for fixing things that could wait until the next scheduled visit. There is one of those residents in every block….of course the agent is happy to do this as they aren’t paying for it.

[Simpo Two]

Thr33 said:

I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

Fast forward to 18th December and I received a letter from a solicitor demanding nearly £4,000 by 5th January...

Somebody has forgotten they said you could pay in installments.

I would forward a copy of the letter that states 'you do not have to pay the amount in full on demand' to the solicitors and add a polite way of telling them to wind their necks in.

[isleofthorns]

it's worth having a good read of the lease wording.. you may find that there are conditions around how and when they can make a demand etc. In my experience, managing agents follow a process that suits them rather than follow the letter of the lease

[Panamax]

Thr33 said:

This year the service charge rose from £1,500 to £3,000 for no apparent reason.

That seems unlikely. Service charge is usually paid against a budget for the coming year. It obviously can't be paid after the year or there would never be any cash to spend.

Thr33 said:

It was due to be paid at the start of October. I questioned this amount and was not given a clear reason as to why the service charge had risen so dramatically.

Questioning the amount doesn't make it go away if it's been demanded in acordance with your lease.

Thr33 said:

The service charge is due yearly and in one (full) payment. I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

The arrangement is clear, it's DUE at the start of the year but you can spread the payments SO LONG AS you keep up with the payment schedule. Otherwise the system reverts back to all due at the start of the year.

Thr33 said:

Fast forward to 18th December and I received a letter from a solicitor demanding nearly £4,000 by 5th January (the full service charge plus legal fees and interest). I emailed the management company and the solicitor immediately on receipt of the solicitor’s letter on 18th Dec saying there must be some mistake but have not received a reply from either.

I suggest you stop delaying and pay the £4k asap unless you're willing to get into big and expensive litigation. Unpaid service charge is a right pita for leasehold properties and the burden falls on other owners unless the cash keeps coming in from everyone. The practical opportunities to dispute a service charge are at the budget stage or AFTER you've paid an amount that you believe is excessive. Simply withholding payment because you don't like the numbers is a very bad idea because costs escalate fast once lawyers get involved.

How many other leaseholders are there? Do you know their views on the service charge? Are there directors or a residents association of some kind?

[Thr33]

Thank you all for your replies. It is much appreciated.

[Thr33]

Panamax said:

Questioning the amount doesn't make it go away if it's been demanded in acordance with your lease.

…

The arrangement is clear, it's DUE at the start of the year but you can spread the payments SO LONG AS you keep up with the payment schedule. Otherwise the system reverts back to all due at the start of the year.

…

I suggest you stop delaying and pay the £4k asap unless you're willing to get into big and expensive litigation. Unpaid service charge is a right pita for leasehold properties and the burden falls on other owners unless the cash keeps coming in from everyone. The practical opportunities to dispute a service charge are at the budget stage or AFTER you've paid an amount that you believe is excessive. Simply withholding payment because you don't like the numbers is a very bad idea because costs escalate fast once lawyers get involved.

How many other leaseholders are there? Do you know their views on the service charge? Are there directors or a residents association of some kind?

Thank you for your reply. I have not been silly enough to hope the bill would go away. I contacted the managing agent and asked why the fees had risen so dramatically but the answers they gave were not clear. At that point (mid November) I gave up trying to get clear breakdowns of where the figures came from and asked to pay in instalments (due to £3,000 being a large single amount to pay when you’ve budgeted for £1,500) and was told I could pay in instalments. I was never given an instalment plan (which I would have adhered to), instead the next email I got was from a solicitor which is why it came as such a surprise.

The freehold is owned by the 6 owners (including myself) and each flat has a separate leasehold too. The residents association is a company owned by the freeholders and the management company is a secretary to the company.

[Thr33]

Simpo Two said:

Thr33 said:

I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

Fast forward to 18th December and I received a letter from a solicitor demanding nearly £4,000 by 5th January...

Somebody has forgotten they said you could pay in installments.

I would forward a copy of the letter that states 'you do not have to pay the amount in full on demand' to the solicitors and add a polite way of telling them to wind their necks in.

Thank you. I believe this is what has happened. They wrote to me and said that I was welcome to pay in instalments (all extremely amicable) but never supplied a payment schedule. Less than 1 month later the next person to contact me was a solicitor with a £4,000 bill and threat of removal of my lease.

[davek_964]

It was due to be paid at the start of October.

You questioned the amount, and asked to pay in installments - but over 2 months later you still hadn't paid anything

[Thr33]

isleofthorns said:

it's worth having a good read of the lease wording.. you may find that there are conditions around how and when they can make a demand etc. …

Thank you, I will have a look at this.

[caziques]

My advice...do not pay the lawyer anything.

If you can, pay the original invoice to the management company. The lawyer would have his work cut out to try and get any money out of you for all sorts of reasons.

I had some similar issues with a thieving business partner many years - and I had all sorts of demands from debt collectors. I paid a number of legitimate invoices direct - the original amount. Never paid anything to any other entity. Some amusing threatening phone calls followed - one debt collector told me to "fk off" and put the phone down on me, most satisfying.

In this case the lawyer would have to try and sue for "collection costs", not an easy task

[Simpo Two]

davek_964 said:

It was due to be paid at the start of October. You questioned the amount, and asked to pay in installments - but over 2 months later you still hadn't paid anything

Thr33 said:

I was told in writing in mid-November that ‘although the charges are issued annually you do not have to pay the amount in full on demand’ and that I could pay in instalments.

Even if he had not asked to pay in installments, and done nothing, the threats and £1,000 legal bill is vastly disproportionate. It makes me wonder if there are modules in a law degree called 'Sabre rattling' and 'Threats without reasonable cause'.

[skyebear]

Thr33 said:

Thank you for your reply. I have not been silly enough to hope the bill would go away. I contacted the managing agent and asked why the fees had risen so dramatically but the answers they gave were not clear. At that point (mid November) I gave up trying to get clear breakdowns of where the figures came from and asked to pay in instalments (due to £3,000 being a large single amount to pay when you’ve budgeted for £1,500) and was told I could pay in instalments. I was never given an instalment plan (which I would have adhered to), instead the next email I got was from a solicitor which is why it came as such a surprise.

The freehold is owned by the 6 owners (including myself) and each flat has a separate leasehold too. The residents association is a company owned by the freeholders and the management company is a secretary to the company.

Why can't you and the other freeholders punt the management company if their fees are unreasonable?

[si_xsi]

Usually service charge is billed and payable quarterly or monthly in advance, will depend on the SC provisions in your lease. Was the annual budget issued on time and was the cost disputed in writing at the time the budget was received? The Man Co's budget should show a line by line detailed breakdown (with narratives) for each item of expenditure against the previous years budget, so you should clearly be able to see where the increases lie. You could ask them if they have under or over spent for the previous year and if there are any credits you can offset against the new budget.

Everything has gone up - buildings insurance, materials, labour etc. When people see quotes for £500 to change some lightbulbs (or similar) that they could do for £50 they often forget that contractors have to pay for liability insurance, pay for parking, go out to check whats needed first, undertake risk assessments before working etc etc.

The freeholder/Man Co should be complying with Section 20 of the Landlord and tenant Act when getting quotes and instructing works, worth having a google and checking they are adhering to this. Its the main downside of living in a flat with other leaseholders, you have limited control over the budget. You could suggest holding an AGM in advance of the budget (with other leaseholders) to have some input into what goes into the budget for forthcoming years.