Service Charge Recovery Has Never Been So Demanding

The correct amount must be stated in the demand. A subsequent corrective demand for an increased amount will be unenforceable if it offends the 18 month rule (Paddington Walk Management v Peabody Trust).

With regard to payments on account, the lessee will not be liable to pay a balancing charge in respect of any costs incurred more than 18 months before the demand. Any amount payable and paid in advance will be unaffected (Holding & Management (Solitaire) v Sherwin).

Section 20B(2) provides some respite: the statutory sanction does not apply if, within 18 months (beginning with the date when the relevant costs in question were incurred), the lessee was notified in writing that those costs had been incurred and he would subsequently be required to contribute by way of a service charge.

The requirements of a section 20B(2) notice were considered in Brent LBC v Shulem B Association. The High Court decided the notice must refer to costs actually incurred. An estimate of future costs will not suffice. Further, the notice must identify and specify a figure for those costs. However, a landlord who knows he has incurred costs, but is unable to state the amount precisely, may specify a figure as a limit on the cost ultimately recoverable. Finally, it is not necessary for the notice to state what proportion of the costs will be passed onto him; nor what the resulting service charge demand will be.

The Upper Tribunal case of OM Property Management Limited v Thomas Burr addressed the question of when costs have been “incurred” for the purpose of establishing when the 18 month time limit starts.

His Honour Judge Mole QC noted that although a contractual liability may be incurred at the point that a service is provided; a liability does not become a “cost” until made concrete. From this, he extrapolated: “‘costs’ are ‘incurred’ on the presentation of an invoice or on payment”. Whether a particular cost is incurred on the presentation of an invoice or on payment “may depend on the facts of the particular case”.

The key issue is therefore when the cost has become “concrete”. This may depend on whether there is a genuine dispute over the invoice amount.

In view of the uncertainty; landlords, management companies and managing agents should adhere to the proverb: “the cautious seldom err”. When an invoice is presented, it is safer to assume the time limit runs from that date (as opposed to the date of payment). The demands that follow should be sent as soon as reasonably practicable and, if a delay is likely, section 20B(2) notices should be served without hesitation.

Roger Hardwick is Head of Enfranchisement at Brethertons Solicitors.