Residential Service Charges and Superior Landlords of Mixed Use Premises
Superior Landlords of mixed use premises often assume the residential service charge regime does not apply to them. This may be either because they do not let their property directly to residential tenants, or because the property includes commercial units.
That is a potentially costly mistake.
The Landlord and Tenant Act 1985 (the Act) imposes two limitations on a landlord’s ability to recover services charges from any ‘tenant of a dwelling’:
- Costs can only be recovered if they are reasonably incurred and the services provided or works done are of reasonable quality; and
- If works over a certain value are to be carried out (‘qualifying works’) or a long-term contract for the provision of services is to be entered into, known as a qualifying long term agreement (QLTA), then a landlord must first consult every tenant of a dwelling in a prescribed manner (the ‘consultation requirement’)
If the consultation requirements are not carried out properly (or at all) the landlord can only recover £250 for qualifying works and £100 for QLTAs from every tenant, potentially leaving it with substantial unrecoverable costs.
Note that:
- The above limitations apply to any ‘… costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord’ (section 18 of the Act)
- It does not matter if the lease includes more than one dwelling and/or common parts and/or commercial units; if there is a dwelling in the demise the Act applies
- A Head Lessee of multiple residential units, even one who is not in occupation of any part of the property itself, is still a tenant of a dwelling.
- The Head Lessee and the tenants of individual dwellings must therefore all be consulted about any qualifying works or QLTAs
- It is the landlord that intends to carry out the qualifying works or enter into a QLTA that is responsible for carrying out the consultation requirements, even if that is the Superior Landlord
- Any tenant of a dwelling can apply to the Tribunal for a decision as to whether a service charge is payable, whether costs should be included in a service charge, or how much should be paid etc. Sub-tenants of dwellings can therefore apply for a determination against a Superior Landlord, even though they have no direct relationship with the Superior Landlord.
- In relation to mixed use premises, where (as a common example):
- A number of commercial units are let under separate commercial leases, and there is a Residential Head Lease of multiple residential units; and
- Service charges are apportioned between the Commercial Leases and the Residential Head Lease; and
- The Superior Landlord decides how the service charges are apportioned (i.e. the apportionment is not fixed by the terms of the leases themselves)
The residential tenants can apply to the Tribunal to decide the apportionment between the Commercial Leases and the Residential Head Lease. Note that any clause in the Residential Head Lease providing that the decision of the Landlord or his surveyor is final and binding (or something similar) would be void, under s.27A (6) of the Act. If the residential tenants challenge apportionment, the Superior Landlord may not be able to recover 100% of its service charges
The Act clearly does apply to Superior Landlords, but unfortunately it is not particularly helpful to them. There is, for instance, no adequate solution for Superior Landlords who must consult with residential sub-tenants that they have had no prior relationship with, and that they have no knowledge about.
If a Superior Landlord is not certain it can identify every ‘tenant of a dwelling’ that it needs to consult with, it can make an application to the Tribunal for permission to do away with the consultation requirements. If the Tribunal does not grant that permission, it should at least provide appropriate directions to enable the Superior Landlord to do so.