Landlords risk losing thousands if they fail to consult tenants
Landlords risk losing hundreds of thousands of pounds if they fail to consult tenants properly over service charges.
In a recent case, Daejan Investments Ltd had to forfeit £270,000. Now Stenau Properties Ltd have fallen into the same trap.
The Landlord and Tenant Act 1985 requires that landlords go through a thorough consultation process before imposing service charges on tenants.
This process should set out what the charges are for and the precise nature of the work to be carried out.
Tenants should be provided with a list of potential contractors and given the chance to suggest alternatives. They should also be allowed to have a say in which company is awarded the work.
Daejan began consultations in the right way but only provided the tenants with details of one of the four tenders before serving notice that the contract had been awarded. The tenants objected and refused to pay their share of the costs.
The Leasehold Valuation Tribunal ruled that the consultation had not been properly carried out and so the tenants were only obliged to pay £250 each towards the cost of major renovations. This left Daejan £270,000 out of pocket.
Stenau were also limited to payments of £250 per tenant after a tribunal ruled that although the service charges were perfectly reasonable, their consultation process was inadequate.
The company applied for an order dispensing with the consultation requirements because there was no evidence that the tenants would have behaved any differently if they had been fully consulted. That argument was rejected so Stenau appealed to the Upper Tribunal, but that too ruled against them.
It held that a properly conducted consultation process gave tenants confidence in the decisions reached and so the opportunity to take part in the decision making process was of real value.
In this particular case, the level of consultation had fallen far below what was required and so charges to the tenants had to be limited to £250, even though the cost to the landlord was much greater.
The message is clear: the correct procedures have to be followed when imposing service charges, regardless of how tiresome those procedures may seem. Failure to do so could see the charges being reduced to a negligible level by a tribunal.
Please contact Kevin Walsh if you would like more information about the issues raised in this article.