Schedule 8: Remediation costs under qualifying leases Paragraph 7: Annual limit on service charges Background
This is a new provision.
	Paragraphs 5 and 6 make provision for maximum amounts ("the permitted maximum") that landlords can charge to leaseholders in respect of historical building safety defects. For most leaseholders, the permitted maximum is £10,000, or £15,000 for properties in Greater London. This provides for a fair approach to the allocation of remediation costs, such that qualifying leaseholders make a proportionate and equitable contribution to remediation when there is no clear party to pay in full, while being protected from excessive and unaffordable bills.
	Paragraph 7 makes provision for the capped leaseholder contributions to be spread over up to ten years, by setting out that service charges relating to historical building safety defects cannot be higher than one tenth of the maximum capped amount in any given 12-month period. For most leaseholders outside of London, this means that maximum payable amount will be £1,000 per year, and £1,500 per year for most leaseholders in London.
	The annual limit on the caps represents a maximum, not a target, and landlords will need to provide evidence to leaseholders that work is needed when a service charge is levied (using powers made under paragraph 16 of this Schedule).
	This approach is intended to maximise affordability for qualifying leaseholders who can be required to make a capped contribution. Landlords who are responsible for organising remediation work will need to put arrangements in place to begin work and recover capped leaseholder contributions over time.
Example 1
A qualifying leaseholder of a flat in London has a permitted maximum of £15,000. Their landlord can charge up to £1,500 per year towards historical building safety costs. After the cap is reached, the landlord will not be able to charge leaseholders anything more towards historical building safety costs.
Example 2
A qualifying leaseholder of a flat in Newcastle has a permitted maximum of £10,000. The leaseholder paid £2,000 towards cladding costs prior to commencement; this means their remaining maximum liability is £8,000. Going forward, the landlord can charge the leaseholder up to £1,000 per year for eight years in respect of non-cladding costs.
Example 3
A qualifying leaseholder of a flat in Manchester has a permitted maximum of £10,000. The landlord commissions remedial work and charges the leaseholder £1,000 per year for three years to cover the cost of the works. The leaseholder’s remaining maximum liability is £7,000. Several years later, further work is identified which falls within scope of the Schedule. The landlord can continue to charge up to £1,000 per year, until the £10,000 cap is met. After the £10,000 cap is met, the landlord cannot make any further service charge demands in respect of historical building safety defects.