Tackling service charge ‘voids’ in an RTM company
This technical but useful article offers guidance on what to do if you’ve taken overt management of your building, and there are unsold units – which is more common than you may think
This article was written by Mathew Wayman of LMP law for News on the Block and published on 09/02/2015
It was a familiar scenario during the recession: a developer built a new block and then, when they couldn’t sell all the units as hoped, decided to cut their losses and rent out the unsold flats on an assured shorthold tenancy basis.
Where the block has subsequently been part of a Right to Manage process, the RTM company can then find that the service charge percentages for the estate are not adding up to 100% – and that they are facing a growing deficit in collections.
There is no lease to enable the usual service charge recovery routes to be pursued. The RTM company cannot threaten forfeiture, so what can you do to secure the service charge payments from flats where the developer has retained the flat without granting a lease?
Fortunately a redress comes through Section 103 of the Commonhold and Leasehold Reform Act.
This covers landlord contributions to service charges for RTM companies and comes into force when one or more flats are defined as an ‘excluded unit’ (one where someone other than the qualifying tenant holds the lease).
Section 103 explains that if there is an RTM company with an excluded unit, then the person responsible must pay the service charge.
If there is no lease, then the ‘person responsible’ is the freeholder, ie the developer or whoever the developer sold the freehold to.
It’s a straightforward solution that is often overlooked by RTM companies and their advisers, when trying to tackle service charge voids in blocks where the developer has retained the lease and is letting out one or more units on an AST basis.
RTM companies by their nature don’t have large cash reserves to draw on and so it’s important to get issues such as this ironed out quickly so they don’t impact on your ability to manage the block.
