Para 5, Schedule 8, Building Safety Act 2022 Limit on service charge in other cases

(1) A service charge which would otherwise be payable under a qualifying lease in respect of a relevant measure relating to any relevant defect is payable only if (and so far as) the sum of—

(a) the amount of the service charge, and

(b) the total amount of relevant service charges which fell due before the service charge fell due,

does not exceed the permitted maximum.

(2) In this paragraph “relevant service charge” means a service charge under the lease in respect of a relevant measure relating to any relevant defect that—

(a) fell due in the pre-commencement period, or

(b) falls due after commencement. 

(3) In sub-paragraph (2) “the pre-commencement period” means the period—

(a) beginning 5 years before commencement or, if later, on the day the relevant person became the tenant under the qualifying lease, and

(b) ending with commencement.

“The relevant person” means the person who was the tenant under the qualifying lease at commencement.

(4) In this paragraph—

“commencement” means the time this paragraph comes into force;

“the permitted maximum”: see paragraph 6.

Comes into force on 28 June 2022.

Applies to England and Wales.

I found this paragraph really challenging.

In simple terms, it limits the service charge that certain leaseholders are required to pay for certain remedial works, but its apparent simplicity deceived me.

Subparagraph 1 is the subparagraph that sets out the circumstances in which a limited service charge is payable, but the paragraph as a whole contains four subparagraphs because the terms used in subparagraph 1 need to be defined.

It is with those definitions that I propose to begin.

“Qualifying lease” is defined in section 119.

“Relevant measure relating to a relevant defect” is defined in paragraph 1 of Schedule 8.

“Relevant defect” is defined in section 120.

“Service charge” is defined in paragraph 1 of Schedule 8. That paragraph refers the reader to section 18, Landlord and Tenant Act 1985. You can read the text of section 18 here.

“Relevant service charge” is a key phrase that itself contains terms that require definition before it can be properly understood.

“Permitted maximum” refers the reader to paragraph 6 of Schedule 8.

The length of the “pre-commencement period” is one of two time frames. In both cases it is a period of time ending on 28 June 2022. The start date is either:

• 29 June 2017, or
• The date on which the leaseholder who is the leaseholder on 28 June 2022 became the leaseholder, if that date is later.

For example:

Hilary Smith

• They have been the leaseholder of a qualifying lease of flat 256, Alphabet Tower, since 14 May 2013.
• On 28 June 2022, they are still the leaseholder.
• For them, the pre-commencement period starts on 29 June 2017.

Leslie Jones

• They have been the leaseholder of a qualifying lease of flat 259, Alphabet Tower, since 28 September 2020.
• On 28 June 2022, they are still the leaseholder.
• For them, the pre-commencement period begins on 28 September 2020.

“Commencement” is a relief. It is simple: it’s the date on which paragraph 5 comes into force, which is 28 June 2022.

“Relevant person” is the leaseholder who was the leaseholder of the lease – which must be a qualifying lease – on 28 June 2022.

This paragraph contains a new variant of “service charge” – the “relevant service charge”.

In the broadest brush terms, a “relevant service charge” is a service charge for works and services connected with building safety.

Technically, under subparagraph 2 it is a:

“service charge under the lease in respect of a relevant measure relating to any relevant defect that—

• “fell due in the pre-commencement period, or
• “falls due after commencement”.

That means that it is a charge that:

• is raised for a relevant measure relating to any relevant defect, or
• is due to be paid in either the five years leading up to 28 June 2022 or within those five years if the lease changed hands in those five years.

In the examples that I gave above of Hilary Smith and Leslie Jones, that means that:

• Hilary will add together all of the service charge demands received for remediation works from 29 June 2017 to date and ongoing;
• Leslie will add together all of the service charge demands received for remediation works from 28 September 2020 to date and ongoing.

Just to be clear: a reference to a demand that falls “due” is to the date on which a service charge must be paid. It is:

• not the date on which the works or services are provided;
• not the date on which the service charge demand is raised;
• not the date on which the demand is received by the leaseholder.

Returning then to subparagraph 1, and taking into account the definitions, this paragraph means – I think – that where a demand is or has been made for measures relating to remediation, and provided that the lease is a “qualifying lease”:

• There is a limit to the service charges that a leaseholder is liable to pay;
• For leaseholders who have been leaseholders throughout the period from 29 June 2017, they are not liable to pay any service charges relating to remediation once those charges reach a “permitted maximum” figure;
• The “permitted maximum” is calculated by adding together service charges relating to remediation, starting from 29 June 2017;
• For leaseholders who became leaseholders after 29 June 2017, they are not liable to pay any service charges that fell due after they became the leaseholder where those charge relate to remediation, once those charges reach a “permitted maximum” figure;
• The “permitted maximum” is calculated by adding together service charges relating to remediation, starting from the date on which they became the leaseholder.

That means therefore that when service charge accounts are prepared, costs that relate to remediation must be separated from other “normal” service charges.