by Alison McLachlan

Service charge arrears 6 things you need to know

The collection of service charge arrears is a vital part of management, writes Alison McLachlan, Litigation Team Leader, SLC Solicitors.

he collection of funds must be swift in order that obli-

Tgations and liabilities are met and leaseholders, whose contributions have been forthcoming, do not suffer any detriment. It should be easy to instruct a solicitor. Firms are often able to receive instructions and report electronically, issue letters before action and court proceedings swiftly and offer flexible fee structures.

What is payaBLe?

The lease is a contract between a landlord, possibly a manager, and a leaseholder, and sets out how a tenant’s service charge contribution is calculated, whether payment is due in advance or in arrears along with the heads of expenditure that a tenant is liable to contribute towards. Variable service charges are only payable to the extent that they are reasonable..

to Whom is it payaBLe?

The party to whom service charge contributions are due, will be identified by the lease as the landlord or manager. Where contributions are paid to a manager, they will commonly be identified by name or there may be provision for appointment. Managers or landlords may engage agents to carry out collection and provide services. Agents act with the authority of their principal and may demand that leaseholders pay funds to them direct.

By Whom is it payaBLe?

The lease will require contributions to be paid by the tenant, or successors in title, and not necessarily the occupier. You can expect your solicitor to confirm, through enquiries, the current leaseholder.

proCeduraL matters – Court proCeedinGs

All leases, along with statutory provisions, have pre-conditions for payment by a tenant. Your solicitor should be able to advise you on the requirements that precede or surround the issue of a demand for payment.

Following from this, managers or landlords will be keen to commence proceedings to recover overdue contributions. Prior to undertaking any work, a solicitor should review and advise as to whether legal costs are recoverable in full from a defaulting tenant and in what circumstances recovery will be deferred. A solicitor is obligated to discuss escalating costs, and may chose to cap them where possible, to ensure that they do not become unreasonable or disproportionate to the debt and thereby unenforceable.

Prior to commencing court proceedings, parties must comply with pre-action protocol, which sets out how the parties must conduct themselves prior to litigation. Non-compliance may diminish the prospects of successful recovery or resolution of a dispute and prejudice recoverability of interest and costs. You can expect a solicitor to protect your interests in this respect.

enforCement

Your solicitor should assist a landlord or manager to seek immediate payment from a mortgagee, who will be keen to protect their security in a property. Most mortgagees will require a County Court judgment or LVT decision and service of a notice of intention to re-enter the property. You should expect a solicitor to ensure a landlord or manager is in a strong position to exercise a right of re-entry, and to serve relevant notices in order to achieve such payment. Where required, a solicitor will be able to navigate their client through possession proceedings.

In the event that the above is not desirable or appropriate a landlord or manager is at liberty to turn to alternative mechanisms for enforcement whereby sums can be sought direct from a defaulting tenants salary, a leaseholder’s goods are identified and removed to the value of the debt or the debt is secured against the value of the property.

dispute

Where disputes arise, a solicitor will identify the issues, advise on any defects in performance of obligations and make recommendations for remedy. Where a dispute cannot be resolved amicably, a solicitor may assist by drafting and filing court proceedings, compiling evidence and preparing for hearings. A solicitor practicing in this area will be familiar with the LVT and may assist or act for you in this respect.