Service Charge penalty

[animal]

Is there any legal requirement to give notice of a penalty for non payment of a service charge on a long leasehold flat (999 years)? the Commonhold and Leasehold Reform Act 2002 seems to imply there is. There is provision in the lease for the freeholder to decide the level of a penalty and the management had set the interest charge to 10% prior to the breach.

Situation is that interest was added to the service charge without any warning or any time period for remedy. Is this unlawful?

I understand that Newham Council –v- Khatun established the precedent that Tenancy Agreements are subject to the provisions of the Unfair Terms in Consumer Contracts Regulations 1999. Does this mean that the above penalty is unlawful by virtue of the true cost to the freeholder is pennies in interest?

Regards

[jeffrey]

Is there any legal requirement to give notice of a penalty for non payment of a service charge on a long leasehold flat (999 years)? the Commonhold and Leasehold Reform Act 2002 seems to imply there is. There is provision in the lease for the freeholder to decide the level of a penalty and the management had set the interest charge to 10% prior to the breach.

Situation is that interest was added to the service charge without any warning or any time period for remedy. Is this unlawful?

I understand that Newham Council –v- Khatun established the precedent that Tenancy Agreements are subject to the provisions of the Unfair Terms in Consumer Contracts Regulations 1999. Does this mean that the above penalty is unlawful by virtue of the true cost to the freeholder is pennies in interest?

Regards

1. Leases are probably not Tenancy Agreements (considered to be "consumer contracts" within these Regulations).
2. Section 166 of 2002 Act does not apply to service charge demands, only to ground rent.
3. BUT see s.158 of Act and Schedule 11. If the penalty is not specified in the lease- see para. 1(3) of Sch. 11- it is a variable administration charge and so restricted by paras. 2-5.

[animal]

3. BUT see s.158 of Act and Schedule 11. If the penalty is not specified in the lease- see para. 1(3) of Sch. 11- it is a variable administration charge and so restricted by paras. 2-5.

This is specifically what I was looking at.

Section 4 (1) A demand for the payment of an administration charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to administration charges.

I cannot find what format the demand should be...

[jeffrey]

This is specifically what I was looking at.



I cannot find what format the demand should be...

There is no fixed "demand" format.
BUT Regulations under para. 4(2) can prescribe form of summary of rights and obligations. No such Regs. yet in force, although para. 4(1) already requires a summary, BUT new SI is pending. See SI 2007/no. 1258, in force on 1 October 2007 (England only, not Wales).
Send me a pm with your direct e-mail address and I'll forward a copy of the SI.

[animal]

Thanks, that reference was helpful - I found the SI in the online database...

I have taken another look to find where this penalty came from. I cannot find any clause in the lease, related to penalties. The Board minutes where they imposed the penalties states that they are imposing the 10% charge on overdue accounts 'as detailed in the original rules and regulations'. This refers to a handbook that was issued from the old management company that had a lease over the property prior to the purchase of the freehold.

The lease has a clause under regulations which states 'at all times observe and perform all such variations or modifications of the forgoing regulations and all such further or other regulations as the lessors may from time to time in their absolute discretion think fit to make for the management and care of the buildings.'

Any opinion on the legality of this? Seems to fit the definition of an unfair term in that it allows the lessors to change the lease in any way they see fit.

[jeffrey]

1. Are collective lessees the owners of f/r or is that still owned by builder?
2. Power to make new regs. is in lease, so valid if "for management and care of the buildings". Penalty charge is not within that defined purpose, I think.
3. Anyway, the penalty is still a variable administration charge, since it is neither specified in the lease nor calculated in accordance with a formula specified in the lease- so Schedule 11 applies.

[animal]

Sorry, I haven't explained the exact situation :-)

1. The original lease was raised in 1984 with the flats built between 1984 and 1986. The flats were originally sold as leasehold. In 2002, all owners agreed to the purchase of the freehold and a company was formed for that purpose. All owners are now shareholders of the company that owns the freehold. The majority of shareholders are elderly and unwilling or unable to stand up to the few who dominate the management, so it is difficult, if not impossible, to get support from other shareholders.

2. I did wonder if 'management' could include recovery of service charges?

3. Would you agree then, that they should have supplied 'a summary of the rights and obligations'? Does this make their demand unlawful?

[jeffrey]

Sorry, I haven't explained the exact situation :-)

1. The original lease was raised in 1984 with the flats built between 1984 and 1986. The flats were originally sold as leasehold. In 2002, all owners agreed to the purchase of the freehold and a company was formed for that purpose. All owners are now shareholders of the company that owns the freehold. The majority of shareholders are elderly and unwilling or unable to stand up to the few who dominate the management, so it is difficult, if not impossible, to get support from other shareholders.

2. I did wonder if 'management' could include recovery of service charges?

3. Would you agree then, that they should have supplied 'a summary of the rights and obligations'? Does this make their demand unlawful?

2. Yes, but penalties are iffy.
3. Yes and yes. No summary= not payable: see paras. 4(3) and 4(4).

[animal]

Thanks Jeremy,

I still have reservations as the penalty is referred to as interest. I have studied the lease again and can find no reference to any penalty or interest for late payment of service charges. The actual reference to the penalty is in a resident's handbook and states the directors may apply 10% interest on late payment. But there is no reference to a clause in the lease. I am wondering if they have charged this under some other statute.

I have decided to ask the management under what clause they have applied interest.

[animal]

Reading again this morning I found

In case of default the same shall be recoverable from the lessee as rent in arrear

under the service fees section. I have been unable to locate a definition of 'rent in arrear'. Could this possibly be what they are relying on? Anyone point me to where this is defined in the act?