Service Charge Demands & the 18 Month Rule
Section 20B, Landlord & Tenant Act 1985 requires that all service charge demands are made within 18 months of the date when the liability was incurred. However, there is no clarity about whether that demand can be defective and can the situation then cured by a later demand after the 18 month window has closed. It is this question that has been dealt with by the High Court in the recent case of London Borough of Brent v Shulem B Association Ltd [2011] EWHC 1663.
Put simply, Brent was the owner of five blocks of flats in Willesden and the Association held leases of 15 of those properties. Brent began major works to the flats in May 2004 having carried out the appropriate consultation with leaseholders and payments were made in stages during the works. An invoice was sent to the leaseholders for around £19,000 in February 2006 This invoice had items in it which applied to work done on all five blocks rather than one specific block. A replacement invoice, for £15,794.99, was sent in December 2006 and this invoice contained items specific to each block. The Association failed to make payment and proceedings were issued.
The leaseholders argued that while the February invoice was made within 18 months of the costs being incurred it did not comply with the terms of the lease because it included cost items that were for other properties and so could not be counted for the purposes of s20B. The December invoice was rendered too late and was outside the 18 month window. Brent argued that the February demand was a relevant demand for the purposes of s20B and should not be excluded.
The High Court held that the invoice from February 2006 was not in accordance with the terms of the lease which required demands for service charges to relate to “the flat and the building of which it forms part”. The February demand contained elements which related to other buildings and could not be a valid demand under the lease. Accordingly, the demand could equally not be an appropriate demand for the purposes of s20B which requires that the demand is “valid”. The February invoice was equally invalid as a notification of an incurred liability under s20B(2) because it did not state the actual costs incurred and the proportion that the lessee would eventually be required to pay.
Therefore the February invoice was invalid both as a service charge demand or as a notification of incurred costs. The parties had agreed that if this was the case then the December demand was outside the December window. Accordingly, the demand had not been validly made and the monies were not owed by the Association.
This case emphasises the need in major works to be very careful when making staged payments to contractors to keep tenants informed of those payments along the way by way of a notification under s20B(2) to prevent the 18 month clock running out of time. In addition those notifications must be carefully constructed in order to make sure that they are valid under the terms of s20B(2) and under the lease itself.