DAC Beachcroft Real Estate Advisory Alert: Tip of the Week - Spend or Return
Published 23 June 2014
The recent case of Friends Life Management Services Limited and A&A Express Building Limited reinforces the point that a landlord either has to spend monies it receives by way of service charge within the service charge year a lease terminates or return it to the tenant. In this case the lease permitted the landlord to include in the service charge a provision against future major expenditure and over several years it collected a substantial sum from the tenant. The tenant exercised a right to determine the lease part way through the service charge year. The court ordered that the tenant was liable for the service charges actually incurred by the landlord for the full service charge year during which the lease terminated, notwithstanding the works only commenced after the lease terminated. However, the landlord was not entitled to include payments to its contractor for those works made during the following service charge year.
In addition the landlord was ordered to return the funds set aside against future major expenditure, which it did not actually pay for until after the service charge year in which the lease terminated.
The moral of the story is a landlord must ensure it spends any monies it has been collecting for future expenditure before leases come to an end.