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Case Study - Changing the lease to omit the requirement to audit service charge accounts

Garden Mews Berkshire SL1
to vary the lease clause that required accounts to be audited

The Challenge

Clause l3 of Lease required the freeholder to audit the service charge accounts. With the cost of an audit being £2,500 upwards and the cost of the typical requirement for this size of block being a 'service charge verification', both carried out by a Chartered Accountant the clause was considered overly onerous for this size of block. The cost of a service charge audit was not only the most expensive item in the service charge budget, but cost about £1,000 more than the management fee, £1,500 more expensive than the buildings insurance and believed to offer less real value to the leaseholders.

The Solution

An application to the Tribunal under Section 37 of the 1987 Act which is the procedure to vary a lease where not 100% agree. for 9+ flats - you need 75% to consent and not more than 10% opposing, for up to 8 flats you need all but 1 party to consent. The result - a more 'reasonable' service charge.

Customer Comments

Common sense prevailed. The requirement to audit a service charge when there are perhaps only 20 invoices a year is simply bad drafting by the original Solicitor. If any leaseholder feels that they later want a service charge audit or even a management audit, they are still protected as the 2002 Act gives them this right anyway.