When deciding whether to combine service charge and ground rent arrears, there are essential factors of which residents’ management companies should be aware of. Freeholders or their legal advisors will often propose this solution, but care should be taken before agreeing to this to ensure that the arrangement is legal, compatible with the terms of the lease and in the best interests of leasehold clients.
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Who has the right to demand payment for service charges?
The person to whom service charges are payable will be detailed in the lease – this must be checked before arrangements are made for the freeholder to collect service charges. In some cases, charges will be payable to the management company, in others the freeholder will be entitled to receive this, and occasionally both.
Who can bring a service charge claim?
As is the case with demanding payment for service charges, consideration should be given to who can claim service charge arrears. If the management company has the sole right to collect service charges under the lease, then the leaseholder will not be legally entitled to bring a service charge claim.
Who sends out invoices for service charges?
In many cases, freeholders will not have responsibility for collecting service charges and all invoices will be sent by the managing agent. As such, the freeholder will not be able to raise a claim for any service charge arrears and such claims should be initiated by the managing agent – there is no legal obligation for the managing agent to instruct the freeholder’s legal representatives to recover any arrears.
Has the freeholder sanctioned the combining of the claims for service charge and ground rent arrears?
It is not uncommon for managing agents to be informed that the landlord wishes such claims to be joined when, in fact, it is the ground rent managers that have advocated this approach. You should check with the freeholder and act accordingly.
What does the lease say about forfeiture?
You should check the lease for clarification regarding who can forfeit the lease. Traditionally, this was the sole right of the landlord, but under some modern leases, management agents are given this right.
Who holds the revisionary interest?
The owner of the revisionary interest will be entitled to the leasehold title on forfeiture – it is essential to be aware that the revisionary interest will not always belong to the freeholder.
What would be in your client’s best interests?
The key consideration should be whether combining the arrears would be in the best interests of your client. This will be clear if you are acting for the freeholder or the party with the revisionary interest, but less so if your client, such as a management agent, has no title or interest.
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