Will extending the lease cure my service charge problems?

Unfortunately, the short answer to this question is generally ‘no’, extending the lease will not cure your service charge problems. Although there may be some areas where renewal of the lease will help with service charge problems. What it won’t help with are service charge arrears or disputes and these will need to be dealt with in the first tier tribunal in the normal way.

Statutory renewal under the 1993 Act

If you are extending your lease under the statutory process the starting point is that on renewal you will get the same lease terms that you had previously.
The only difference will be that the new Lease term will be 90 years longer and the ground rent will be cancelled out.
Any debate or argument about the other terms in the lease will be determined by the relevant statutory divisions.

What changes are possible?

Under the 1993 Act, the only changes that are possible (other than by agreement) are those which relate to defects in the existing lease or, changes which are required because of changes in legislation because the original lease was granted.
In general therefore, unless there is a problem with the service charge provisions in the lease at the moment – perhaps because the clause itself is ‘defective’ – there is very little scope for arguing that the arrangements will be changed.
In particular, even if the service charge percentages are perceived as being ‘unfair’ – for instance if a smaller flat seems to be paying a disproportionately high part of the overall costs for the building – then provided that the service charge proportions in the remainder of the building add up with the individual flat’s percentage taken into account there is little scope for arguing that terms of an individual lease should be varied. The logic being that tinkering with the terms of one lease cannot affect the terms of the other leases – unless the owners of those flats agree and enter into a separate deed varying each of the other leases.

What other options do I have?

There are alternative remedies which are available under the 1987 Act to apply for the variation of leases where the service charge proportions are ‘incorrect’ but generally, on a lease renewal under the legislation, unless there is a deficit or another obvious defect in the ability to recover service charges – perhaps ‘an old style’ clause which requires a flat or fixed payment – then there is going to be some scope for change.

Unusual arrangements

We have seen cases where service charge arrangements are linked to external factors thought to be relevant at the time at which the original lease was granted. These sort of arrangements are sometimes found in estate properties on the Central London ‘Great Estates’ (Grosvenor, Cadogan, Portman and others). Usually this is because of historic misconceptions about how the price of goods or services would change and can sometimes be to the distinct advantage of the flat owner.
We are aware of one instance where the service payment was set by reference to the cost of the provision of coke or coal for the boiler for the building and was otherwise a fixed proportion of expenditure.
These types of clauses can cause an issue in practice as the capital value of the property may be affected.  In particular, there may be a ‘discount’ to the leaseholder by having such a clause, but on any renewal under the statute it is inevitable that these sorts of arrangements will be swept away.
As ever with any conveyancing or property due-diligence exercise, great care has be taken when reviewing unusual service charge regimes because of their potential to impact on the value of the property.

I am in dispute with my service charges- do I need to

pay these off to complete my new lease?

Often leaseholders are in dispute with their freeholder over the amount of service charges.Unfortunately, the mere fact that a sum is disputed does not necessarily mean that it will need to be paid on completion.The landlord can request security for unpaid sums which are due under the lease when completing the new lease.  Accordingly, given the strict time limits for completing matters under the 1993 Act, great care has to be taken to ensure that such disputes do not become a distraction leading to the deemed withdrawal of the claim.

The appropriate way of resolving a financial dispute concerning the level of service charge is to make an application to the First Tier Tribunal for this to be determined, and in certain circumstances money can be held by one or other sides’ lawyers pending the outcome of a final determination in the Tribunal which will resolve these issues.  Specialist advice should always be sought if you are affected by these issues.

The way ahead

So, in conclusion, if you have issues with the service charge arrangements under your lease and are thinking about renewal, it is crucial to get specialist advice on the current arrangements and how these may change, if at all.
If you want to investigate how the actual charges may be challenged or if there is other scope to amend or vary the lease in any other way then please do get in contact to discuss.

For further information contact Mark Chick at Bishop and Sewell
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One thought on “Will extending the lease cure my service charge problems?

  1. Thanks. Really good article. I recently heard of a case where a Freeholder defended the unfair apportionment of service charge costs in a block by arguing that when the leaseholders had all recently extended their leases they had as a result waived their right to challenge the service charge percentages. The argument was that as part of the lease extension they had acknowledged, legally, to accept whatever the status quo in the building was at the time the lease extensions were granted. Is it always the case that on extending a lease one automatically waives one’s right to challenge or dispute any pre-existing issues, for example, in the above case, an unfair apportionment of the service charge costs?

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