Industry comment, updates and news from the Websters team.
Dominic Cunliffe of Macfarlanes notes that, unless the lease makes express provision to the contrary, a tenant will not be able to recover from its landlord any prepaid rent or other sums, which relate to the period after a break date.
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BBC Business News reported this week that the Office of Fair Trading is to look into the relationship between leaseholders and their freeholders and, in particular, will look into the way in which charges are made for the management and maintenance of leasehold homes. This investigation will cover councils and housing associations , as well as private freeholders.
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Websters has been specialising in the production and audit of service charge accounts for nearly forty years. When we started this work, service charge audits were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment. Some of the advantages of an audit are:-
We now act for a very large number of landlords, who recognise that independently audited accounts can remove a major cause of conflict with their tenants
A landlord often supplies services, other than rent, such as insurance, water and electricity. Some services may not be standard-rated as a stand-alone supply and Pearson has reported that barristers, who were tenants at the Middle temple, found that problems arose when their landlord supplied a ‘mixture’ of services. VAT law has a preference for treating ‘bundles’ of supplies as a single supply where splitting them would be regarded as ‘artificial’. When a mixed supply is deemed to be a single supply, the predominant supply will determine the VAT rate charged.
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Joanna Nicholls of Howes Percival has reported that, from 1 January 2015, it will be illegal to use the hydrochlorofluorocarbon (HCFC) gas R22 in either its newly produced ‘virgin’ or recycled form. R22 gas is a commonly used coolant in older air conditioning systems so its ban will have a significant impact as these systems will either have to be converted or replaced. The key question for landlords and tenants is who will pay?
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Anna Rutherford of Speechly Bircham notes that the Taking Control of Goods Regulations 2013 made on 26 July 2013 provide further detail on the Commercial Rent Arrears Recovery (CRAR) procedure which comes into force next April. There has been uncertainty and speculation concerning the new regime which replaces the existing law on seizure and sale of goods and the archaic law of distress. CRAR seeks to provide a unified procedure for enforcement agents to follow. Since the Regulations cover specific amounts of rent only, commercial Landlords might be advised to refrain from offering inclusive rents, without detailing separate sums for rent and service charge.
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Peter Bolton King, the RICS Global Residential Director, reports that the RICS Service Charge Residential Management Code is in need of updating, as the current document is woefully out of date. RICS is intending to consult stakeholders next month about what revisions they would like to see in a 3rd edition and will also be asking respondents to assess the impact of any changes. Without a business impact assessment it is unlikely that any updated edition would be endorsed by the government.
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Practical Law notes that, in Blackpool Borough Council and others v Cargill [2013] UKUT 0377 (LC), the Upper Tribunal (Lands Chamber) held that a landlord had not acted unreasonably pursuant to section 19 of the Landlord and Tenant Act 1985 where it had recovered from each tenant the same amount in respect of a global management charge via the service charge.
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An article in Inside Housing explains how Sutton Council corrected the service charge proportions in the leases of an estate, where some tenants had been paying slightly different amounts of service charge, which became critical when the social landlord proposed refurbishing the estate. Before the 1987 Landlord and Tenant Act, the only way to correct a mistake was if someone had acted fraudulently or where the document did not give effect to what the parties had intended. Part 4 of the Act now allows either a landlord or a leaseholder to apply to a leasehold valuation tribunal to correct such problems by varying the lease and this is what Sutton Council did successfully.
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In a recent update, Optima Legal reported the case of OM Property Management Limited v Burr. OM had mistakenly paid EDF Energy for gas and EDF Energy passed this on to the correct supplier, Total Energy . However, there was still a shortfall in the region of £100,000. This sum was put through the service charge and demanded from the tenants. One of the tenants claimed that as the costs had been ‘incurred’ more than 18 months before the service charges demand had been sent and were therefore irrecoverable. A Leasehold Valuation Tribunal agreed with him but the Upper Tribunal overturned that decision, as it decided that the cost for the fuel had not been incurred until the supplier had presented its bill. The Court of Appeal dismissed the tenant’s appeal,stating that the Upper Tribunal was correct that a cost became incurred on the presentation of an invoice or when it is paid (by the landlord).
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