Service charge ruling will be welcomed by landlords

The Upper Tribunal (Lands Chamber) has recently given its decision in Westmark (Lettings) Limited v Elizabeth Peddle and others [2017] UKUT 449 (LC), where CMS acted for the successful appellant.
The issue before the Upper Tribunal was, put simply, when are relevant costs incurred for the purposes of section 20(B)(1) Landlord and Tenant Act 1985 (“LTA 1985”)?
Section 20(B) of the LTA 1985 imposes a time limit on making demands for service charges by providing that a tenant is not liable to pay so much of the ‘relevant costs’ included in a service charge as were incurred more than 18 months before a demand for payment of that service charge was served on the tenant.
Therefore, where a cost is incurred by a superior landlord in providing services and then a service charge is passed down a chain of intermediate landlords before ultimately being paid by the residential tenants, the question for the Upper Tribunal to determine was: does section 20(B)(1) LTA 1985 impose a single 18 month time limit running from when the superior landlord incurs the costs or does the section provide for successive 18 month time limits to apply for each demand in the chain?
The reason this question was important in this case and why it will be of general importance to landlords, is because of the title structure, which is alluded to above. In this case (and in many other developments of this nature) the superior landlord provides services, the costs of which are then passed down a chain of intermediate landlords to the ultimate paying (and benefitting party), the residential tenants. 
The title structure can be shown as follows:


The superior landlord has responsibility for the buildings, insurance and car parking and these charges are passed down the chain by way of a service charge through the two intermediate landlords to the residential tenants and payment is then passed back up that chain to the superior landlord.
So, when were the relevant costs actually ‘incurred’ for the purposes of section 20(B)(1) LTA 1985? Was it when the superior landlord incurred the costs (e.g. when they received or paid an invoice from a contractor) or was it when each intermediate landlord in the chain received an invoice received from its landlord?
The Upper Tribunal determined that the period of 18 months referred to in section 20(B)(1) LTA 1985 runs from the date the invoice is received by each intermediate landlord and not when the costs were incurred by the superior landlord.
This decision will be welcomed by landlords (particularly intermediate landlords) as it provides some protection and comfort that They will not be prevented from recovering service charges, which they have a liability to pay but have not provided or procured and merely pass down a chain of title to the ultimate benefitting party.
Sarah Pope is a Senior Associate at CMS Cameron McKenna Nabarro Olswang LLP


< Back