Schedule 8: Remediation costs under qualifying leases Paragraph 5: Limit on service charge in other cases Background
This is a new provision.
	The provisions in Schedule 8 protect qualifying leaseholders from costs associated with historical building safety defects by limiting, or preventing altogether, the costs that can be passed to leaseholders through the service charge by landlords. Paragraph 5 makes provision that limits the costs that can be passed to leaseholders through the service charge by providing that service charge amounts in respect of costs associated with historical building safety defects cannot exceed a maximum amount referred to as "the permitted maximum".
	The paragraph sets out the service charges that are to be counted towards the permitted maximum amount. As well as future costs relating to historical building safety defects, costs that have already been incurred by the leaseholder in the past five years count towards the capped leaseholder contribution. Since the Grenfell Tower fire in 2017, many leaseholders have been faced with significant costs associated with historical building safety defects, including costs to remediate defects and to cover interim measures like waking watches. This paragraph provides that costs incurred in the five years prior to commencement, so from 28 June 2017, count towards the caps. This means that if leaseholders have already made payments, then going forward they will not have to pay the full capped amount. If a leaseholder has already paid up to the permitted maximum, their landlord will not be able to demand any further payments in respect of relevant measures; this includes costs that have been incurred in relation to cladding and non-cladding defects and interim measures like waking watches. (paragraph 8 provides that qualifying leaseholders cannot be charged for cladding costs going forward, whereas this paragraph provides that any cladding costs already incurred by leaseholders count towards the permitted maximum capped amounts).
	This provision in respect of costs already paid out only applies where costs have been incurred by the person who owns the property at commencement. This means that, for properties that have been acquired more recently (within the five years leading up to commencement) any costs incurred by the previous leaseholder or leaseholders are not to be counted towards the permitted maximum. However, if the property is sold after commencement, costs incurred by the previous leaseholder count towards the capped contribution amount.
	As discussed in the explanatory note to section 122, where service charges are not payable according to paragraphs 5 to 7, the provisions apply irrespective of when any service charge demands were issued to leaseholders.
These examples refer to the permitted maximum amounts set out in paragraph 6.
Example 1
A qualifying leaseholder of a flat in London acquired their property in 2015 and their capped contribution is £15,000. In the five years between 28 June 2017 and 28 June 2022, they had already paid out £5,000 towards a waking watch on their building. The maximum their landlord can charge them in respect of relevant measures is £10,000.
Example 2
A qualifying leaseholder of a flat in Leeds acquired their property on 1 January 2020. In the period between 1 January 2020 and 28 June 2022 they had incurred £1,000 of costs towards a waking watch. Costs incurred by the owner of the flat before 1 January 2020 do not count towards the capped amount. The maximum that their landlord can charge them going forward in respect of relevant measures is £9,000.
Example 3
The leaseholder of the flat referred to in Example 2 pays a further £2,000 towards remediation costs before selling their flat in 2024. They had already paid £1,000 in the pre-commencement period. The maximum that the new buyer of the flat can be charged by their landlord towards relevant measures is £7,000.