New Freeholder demanding service charge shortfall

moldypeach

Hey all.


My partner and I are Leaseholders of a flat, and the Freehold of the building was sold in April. The old Freeholders were Thames Valley Housing - the new Freeholders are 4 of our fellow Leaseholders (6 flats in total in the building, so 2 of us did not join in buying the Freehold). The new Freeholders have appointed a management company to manage the building and the freehold.


Shortly after the sale of the freehold was completed, the new management company informed us that we owed £1,205 "shortfall" on our service charge account and wanted payment of it, having paid it off themselves as part of their purchase. They provided us with no documentary proof this was owed, claiming that Thames Valley Housing (TVH) hadn't yet provided this to them/the new freeholders yet.


TVH did not make us aware of this amount whilst they were the freeholders - we were shocked to hear of it, and have no idea what its for. We thus refused to pay it until we could see documentary evidence that it was owed. We understand the same has been asked of the other Leaseholder and they have also refused to pay until they have proof its owed.


TVH did not send us any demand etc for this amount.


This was back in April. Since then, we have been paying our service charge at the same rate it was with TVH until the new management company could come up with a new amount. It has taken them until now (November) to give us the account for 2016 and are saying that the monthly payment we've been making since April is being allocated to the "shortfall" and not the service charges, despite us making an agreement that these payments were to cover monthly services charges (I have the email agreeing this). We never once agreed to paying the shortfall as its in dispute and no proof has been provided that its owed!


So now they want £1,927 for the service charges for 2016, plus the £1,205 shortfall (minus what we've paid monthly so far)!


Please tell me I'm correct in thinking they can't do this? They should have been using our monthly payments towards the service charge, as was agreed, and NOT the shortfall that's in dispute.


The freeholders effectively paid off our "arrears" with TVH without telling us just so that they could complete their purchase asap (I remember they were anxious to acquire the freehold at the time with the process already being delayed). Am I correct in thinking that they cannot legally pursue this amount unless the old freeholders (TVH) provide them with proof of demands etc for it being sent to us (which they weren't)?


The new management company has freely admitted that proof of demands etc has not been handed over to them and I have outright told them this is because they DO NOT EXIST. The first we knew about it was them asking for it after acquiring the freehold.


Apologies this is long-winded, hope it makes some sense!

Hoploz

I'd suggest that just because you didn't have a demand from tvh it is not necessarily the case that the amount is not owing.

Service charges are usually made up of bills for work done eg gardening, communal cleaning, buildings insurance ... Etc. These are budgeted in advance to set the monthly payments for the coming year, but the accounts are then finalised at the end of the financial year, and at this point the income and outgoings will be calculated. There are likely to be odd discrepancies which mean it doesn't work out exactly, due to unexpected costs, more light bulbs went than usual, some extra work was needed in the garden, that sort of thing is normal.

Under continuous ownership this would probably be absorbed into the following year's accounting, so you'd pay a small amount per flat per month to cover what wasn't covered last year.

But as the freehold changed hands tvh needed to be square and so the accounts were settled in a lump sum.

Your new freeholder should ideally be happy to have this amount split into the coming year's accounts really, but they are hoping you might pay in advance as the money has had to come from somewhere in the first place.

eddddy

I believe the freeholder is committing a criminal offence and can be fined if they refuse to show you receipts in relation to the service charge when you ask (which seems to be what you are saying)...

Service charges

Your lease sets out the way the service charge is organised and what can be charged. If you pay a service charge, you have the right to:

- ask for a summary showing how the charge is worked out and what it’s spent on
- see any paperwork supporting the summary, eg receipts

Your landlord must give you this information

- it’s a criminal offence if they don’t.

Link: https://www.gov.uk/leasehold-property/service-charges-and-other-expenses

For more details...

Rights to further information (inspecting accounts and receipts) (Section 22 Landlord & Tenant Act 1985)

As well as receiving the summary, the leaseholder has the right to inspect documents relating to his service charge as a follow-up to provide more detail on the summary. Within a period of six months from receipt of the summary, the service charge payer (or the secretary of a recognised tenants’ association) may write to the landlord requiring him to allow access to and inspection of the accounts, receipts and any other documents relevant to the service charge information in the summary and to provide facilities for them to be copied.

The above right applies even if the summary was provided via an end of year statement of account, rather than in response to a formal request for a summary under section 21.

Facilities for inspection must be provided within one month of the request, and must be available for a period of two months.

There are further rights of investigation of service charges and management provided by the right to a management audit under the Leasehold Reform Act 1993 and the right to appoint a surveyor under the Housing Act 1996. Full details of those rights are set out in our leaflet Appointment of
a Surveyor, Management Audits.

Failure to provide a summary or allow access to further information

Where a landlord fails without reasonable excuse to comply with either a request for a summary or to inspect supporting documents they commit a summary offence on conviction and are liable for a fine of up to £2,500 (level 4 on the standard scale of fines for summary offences). The local housing authority has the power to bring proceedings, or they can be brought by the leaseholder. Local authorities are exempt from prosecution, but not Housing Associations.

Link: http://www.lease-advice.org/advice-guide/service-charges-and-other-issues/