Residential Service Charges: Reasonableness is the Limit

The majority of Leases of residential flats contain a service charge, to cover the costs incurred by the Landlord in providing ‘services’. These services often include repairs, maintenance and insurance of the main building or estate (of which the flat forms part).

While the Lease will set out in detail those items which can be recharged by the Landlord, residential service charges are subject to statutory restrictions. In particular, service charges are payable ‘only to the extent that they are reasonably incurred’.

In the case of London Borough of Hounslow v Waaler [2017] the Court of Appeal considered whether the costs of repairs and improvements carried out were reasonable. In this case, the Landlord had replaced a flat roof with a pitched roof, and replaced wooden-framed windows with new metal framed units. The Tenant had received a service charge demand for in excess of £50,000.00.

The Court of Appeal held that the following criteria should be considered when deciding whether the costs of works were reasonable (and therefore recoverable under a service charge):-

  • The interests of the tenants- this was done by reference to the unexpired term of their leases;
  • The views of the tenants – particularly where the works to be carried out were improvements; and
  • The financial impact of the works on the tenants.

While each case will turn on its own facts, the case reminds landlords to carefully and fully consider any proposed works. For Tenants, it highlights the importance of understanding the service charge provisions within a Lease, and carrying out a full structural survey to identify any works which may need to be carried out in the future.

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