Flat-Living.co.uk
Legal update
Unpaid service charge An admission by the leaseholder is sufficient. In all cases of unpaid service charge, the RMC should consider whether there is a dispute as to liability, as opposed to an inability to pay. Further, if there is a genuine dispute as to some elements of the service charge (e.g. the costs of major works), there may be no dispute as to other unpaid elements (e.g. the insurance and the porter’s wages may not be in dispute) and the leaseholder may be prepared to admit these undisputed items. The strategy should always be to identify at an early stage whether there is a genuine dispute and, if so, to limit the scope of any proceedings accordingly. The next point to seek to obtain an admission/ further admissions is once the claim has been issued in the County Court. Experience shows that many claims commenced in the County Court are either admitted or result in a default judgment. The County Court procedure will require the leaseholder to issue a notice of intention to defend (if not judgement will be entered for the landlord in default). If the claim is defended, it is likely, though not inevitable, that it will be transferred to the Leasehold Valuation Tribunal. A determination by the LVT may be enforced as if a judgement of the County Court with the permission of the County Court. It is necessary therefore to apply to the County Court if it is intended to enforce the LVT
decision as if a judgement of the County Court. Once granted the usual options for enforcement of a County Court money judgment are open to the landlord, for example by a statutory demand (as a precursor to bankruptcy proceedings), or by obtaining a charge on the leasehold flat. Broadly, serving a statutory demand is likely to be highly effective if the leaseholder is solvent, but unlikely to be effective if the leaseholder has little equity in the flat or other assets (in which case the mortgagee as a secured creditor will rank above the landlord in a distribution).
Caution is required For variety of reasons, not least in terms of recovering costs, once a judgement has been obtained, the best means of enforcement may prove to be the section 146 and forfeiture route. However, caution is required. It is unusual to get as far as forfeiting a long residential lease and doing so may be regarded by the Courts as an extreme step. Further, depending on the circumstances, there may be of potential complications, including, circumventing an debarring order that may have been made under section 20C of the L & T Act 1985. The upshot is that specific legal advice should be obtained before bringing forfeiture proceedings.
The managing agent says…. For any block where service charges are payable but particularly for RMCs the management of arrears is at the heart of good administration. Most RMCs do not have company assets to lend to the service charge when funds are short, yet the responsibility remains with the RMC to continue to provide services and undertake works. Remember, an agent or their client many be committing a fraud if they instruct a contractor to do works knowing there are insufficient
The solicitor says… If you face a problem with arrears of service charges then seek advice at an early stage. The longer you leave the problem the more the arrears build up. They won’t reduce by you doing nothing. Communicate with the lessee and address any concerns raised by the lessee. If the problem persists, • Obtain advice from a solicitor; • Choose a solicitor with the right expertise. Telephone initially – few solicitors charge for that first conversation especially if they think there will be a job in it; • Agree the next step and the costs of any work 14
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done by the solicitor such as limited instructions to review the lease and write to the defaulting lessee and their mortgagee; Agree any action to follow and put in place the legal team; Work as a team: Managing Agent – Solicitor – Barrister (in some cases).
The economic climate has caused an increase in service charge arrears but it has not made recovering the arrears any more difficult. Arrears can be recovered cost effectively and successfully. Andrew Raby, partner at Thackray Williams LLP
funds to pay for it. The agents’ ability to promptly issue budgets and accounts, issue demands (and statements of rights and obligations) and chase arrears ensures the cash flow to the RMC to undertake works and also lays the foundation for any legal action. If the paperwork is wrong from the outset the ability to recover the sums demanded (and costs) may be seriously prejudiced. Andrew McKeer MRICS FIRPM, Director, Prior Estates Ltd
