Retirement living: A guide to challenging service charges

What is a service charge?

A service charge is a fee paid by residents to cover the cost of services and amenities in the communal areas of a care or retirement facility. These are usually leasehold properties, and the charges are governed by the lease agreement. It is important to understand what your lease says about service charges, as this is the key document that dictates what you can be charged for. Common items covered by service charges include:

1. Building and maintenance repairs
2. Gardening and groundskeeping
3. Utilities for communal areas
4. Cleaning of shared spaces
5. Insurance for the building
6. Staff salaries

The distinction between fixed and variable service charges

The Landlord and Tenant Act 1985 (the “Act”) defines a service charge as:

There are, however, two types of service charge: fixed and variable.

1. Fixed service charge – the charge remains the same whatever services are provided and the landlord must provide the promised services. However, charges do not have to be fully fixed. They may, for example, be indexed (meaning it can be adjusted based on a specific index such as the Consumer Price Index or Retail Prices Index.
2. Variable service charge– the landlord passes down the actual costs incurred and tenants pay the appropriate share. So, where more services are provided, the charge goes up to reflect that and vice versa. Again, the landlord must provide the services promised.

Importantly, fixed charges are not subject to the 1985 Act, as they are not determined by reference to landlord’s actual costs of delivering the services. Variable service charges are regulated by the 1985 Act.

Why is the 1985 Act important?

The 1985 Act imposes obligations on integrated retirement community operators and other retirement operators as landlords. Service charges must be reasonably incurred, works or services must be done to a reasonable standard, tenants must be consulted on certain contracts and services before things go ahead, and there are strict time limits and formalities for demanding payment.

These provisions ensure that landlords’ decision-making processes are rational and that the amounts charged are reasonable in the circumstances. If you feel the charges are excessive, you may be able to dispute them.

How do I challenge my service charge?

Challenging a service charge may seem like an onerous task. Disputes often arise regarding the fairness, reasonableness, and apportionment of these charges. Tenants may seek to challenge service charges on the grounds that they are excessive, not properly accounted for, or not in compliance with the terms of the lease or statutory requirements.

It is worth seeking independent legal advice as early as possible to understand your position, and helpful to consider the following practical steps:

1. Review your lease agreement – check to see what the definition of the service charge is and how it is calculated. You can request a detailed breakdown of the costs from the care home or managing agent.
2. Have a discussion – speak to the freeholder, landlord or managing agent about your concerns and keep a record of those conversations.
3. Formal complaint – if you cannot resolve the issue, you could submit a formal complaint in writing with supporting evidence.
4. First Tier Tribunal (Property Chamber) – if all else fails, you may be able to apply to the Tribunal, to determine whether a service charge is payable, the amount, and the manner of payment. This is only applicable for variable service charges. The Tribunal can make a binding decision and may award remedies if service charges are found to be unreasonable. These remedies include adjustments to the charges, repayment of overpaid amounts, or reductions in future charges. Damages are generally not available unless specific covenants or obligations are breached.
5. For fixed service charges, tenants could still bring a claim for breach of a lease in the usual courts.

How can Ellis Jones help?

Our Healthcare Team can review your lease provide you with concise, comprehensive and practical advice and work with you to protect your position and challenge your service charge if appropriate. If you have a matter you would like to discuss, please contact Henrietta Frew by email at Henrietta.Frew@ellisjones.co.uk or phone 01202 525333.