News & Insights

Getting information on service charges – not so easy

How can a reluctant landlord be forced to provide final service charge accounts?  Mark Banham explains that the Court of Appeal has just issued some, possibly controversial, guidance.

One of the most important issues for leaseholders is how much the service charges are going to be each year.  Unsurprisingly, disputes are common and often very bitter – a toxic combination of suspicion about “the management” and the fact that every Englishman’s home is his castle.

In order to ensure transparency, section 21 of the Landlord and Tenant Act 1985 requires landlords to provide leaseholders with a summary of the service charge costs incurred.  Unless there are good reasons why they cannot comply, they have to do so within 6 months of the end of the service charge year or, if after that, within 1 month of receiving a request from the tenant.  Once the tenant has received the summary, under section 22 the tenant is entitled to see all the documents and receipts to back up the accounts.

There are plenty of landlords who regard this as a darned nuisance, eating up time and resources that would be better employed actually managing the building, and there are an equal number of tenants who are determined to hold their landlord to account for every last penny being spent and want to use sections 21 and 22 to get the information to enable them to go through each item with a fine-tooth comb.  And, of course, both may well be right.

In the recent case of Morshead Mansions Ltd v Di Marco, the tenant, Mr Di Marco, was aggrieved because his landlord had failed to provide this information in the proper format for year after year (back to at least 2002).  He therefore, not unreasonably, asked the Court to order Morshead Mansions to do so, i.e. to grant an injunction requiring that they serve the proper accounting statements.  He was struck out at first instance, won his initial appeal and then found himself in the Court of Appeal.  What could be so controversial, you might think, about the court being asked to make an order that the landlord comply with the law?

And here’s the rub – sections 21 and 22 already have an enforcement method, built into the Act.  Breach by the landlord is a criminal offence, punishable by a fine.  The latest amendments passed by Parliament also said that tenants wouldn’t have to pay their service charges if the landlord hadn’t complied (but that was over 5 years ago, the government then realised that this could have some unintended consequences and hasn’t yet brought that provision into force – the chances are, now, that it will never happen).  The Court of Appeal therefore decided that given that Parliament had already said what the consequences ought to be if the landlord didn’t comply, it wasn’t for the courts to order injunctions, which would carry potentially far more grave consequences for contempt of Court if the landlord still failed to do it (imprisonment or unlimited fines).  They therefore decided that in future the courts will not grant injunctions to insist upon landlords complying with sections 21 and 22.

Reasonable?  There was a lot of history to this case, so in the context of Mr Di Marco’s extended skirmishes with his landlord management company, maybe the decision was understandable.  In the wider context, I would suggest less so.  Just because a judge can impose imprisonment for failing to comply with an injunction doesn’t mean that he has to do so, he could for example impose a fine instead and set the level of that fine in the light of the maximum fine that would have been allowed in criminal proceedings.  For the court to essentially turn a blind eye where a landlord is deliberately ignoring its obligations under sections 21 and 22 (and, thereby, committing a criminal offence) might be considered rather odd.

Where this leaves leaseholders, however, is that in order to enforce their rights under sections 21 and 22 they will have to have their landlords prosecuted in the local magistrates court.  The Court of Appeal suggests that local authorities ought to pursue these cases – but that will require tenants to have a sympathetic local council with enough money in its legal budget to pursue the case on their behalf.  The other option is that the tenant pursues a private prosecution on their own.  This won’t be a cheap option but if the landlord is found guilty the tenant may be able to get an order that the landlord pay the costs (or some of them) or alternatively that these are paid by the state, out of “Central Funds”.  The landlord will not be allowed to pay those costs out of the service charge pot!

Prosecution, or the threat of prosecution, may bring landlords to heel in any event.  Dealing with a case of this nature is frightening and time-consuming whatever the actual outcome – it is far better for landlords to properly comply with their accounting obligations.

Most specialist landlord and tenant lawyers are used to dealing with cases in the county court and high court and in the First Tier Tribunal (formerly known as the Leasehold Valuation Tribunal).  The rules and procedures, not to mention the way of working in the courtroom itself, are very different in the magistrates court.  Field Seymour Parkes, however, do have extensive experience of private prosecutions in the criminal courts, both as prosecutor and on behalf of defendants and are therefore the ideal choice to give you the expert guidance that you need in these situations.