Landlord and tenant – Service charge – Section 20B(1) of Landlord and Tenant Act 1985 – Respondent tenant applying for determination of service charge payable to appellant landlord for two consecutive years – Charge demanded by two invoices for advance payments in respect of estimate expenditure for the year followed by invoice for balancing payment in sum by which actual expenditure exceeding estimate – Leasehold valuation tribunal disallowing proportion of charge on ground that costs incurred more than 18 moths before demand for balancing charge – Whether erring in application of section 20B(1) – Appeal allowed
The appellant was the landlord and the respondent was the tenant under a lease of a flat. Under the terms of the lease, a service charge was payable in respect of each maintenance year to 1 April by two equal instalments payable in advance in April and October. The advance payments represented the estimated expenditure for the maintenance year plus a reserve amount. In addition, there was provision for a maintenance adjustment, by which the respondent had to pay on demand a balancing charge representing her share of any shortfall in the estimated charge compared with the actual expenditure incurred over the year.
The respondent applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of the service charge payable for the years 2006-07 and 2007-08. In respect of those years, the appellant had invoiced for advance payments and for a balancing charge. The balancing charge invoice for 2006-07 had been issued in September 2008 and that for 2007-08 in December 2008.
Applying section 19(1) of the 1985 Act, the LVT calculated the amount due from the respondent for those two years as £817.75 and £1,198.38 respectively. However, it determined that those amounts should be reduced, by reason of section 20B, on the ground that certain of the costs taken into account in determining the service charge had been incurred more than 18 months before a demand for its payment had been served. In respect of 2006-07, it disallowed costs incurred prior to March 2007, 18 months before the service of the September 2008 invoice for the 2006-07 balancing charge, on the ground that the earlier demands for advance payments did not satisfy the requirements of section 20B. With regard to the 2007-08 period, it disallowed costs incurred in April and May 2007 for the same reason. Accordingly, it allowed only £68.15 overall for 2006-07 and £998.65 for 2007-08. In doing so, the LVT disagreed with the approach taken by the High Court in Gilje v Charlegrove Securities Ltd (No 2) [2003] EWHC 1284 (Ch); [2003] 3 EGLR 9; [2003] 36 EG 110. The appellant appealed, contending that the LVT had wrongly applied section 20B(1).
Held: The appeal was allowed.
The LVT’s decision was clearly wrong in its application of section 20B. Section 20B(1) had potential application wherever a “demand for payment” of a “service charge” was made. All six of the demands made by the appellant for the years 2006 to 2008 were relevant for that purpose, including not only the invoices for the balancing charges but also the two demands for advance payments made in respect of each year. Each was a demand for payment and each of the amounts to which those demands related was a service charge within section 18 of the 1985 Act. Section 20B would apply to limit the tenant’s liability to pay if any of the relevant costs taken into account in determining the amount of service charge to which the demand related had been incurred more than 18 months before the demand. Since the costs taken into account in determining the amount of the advance payments were prospective costs, they had not been incurred more than 18 months before each of those demands for payment. Accordingly, section 20B(1) did not apply to limit the tenant’s liability in respect of the advance payments: Gilje applied.
The demands for the balancing charges did relate to costs that had been incurred. One possible application of section 20B(1) with regard to those charges would be to treat the relevant costs taken into account in determining the amount of the balancing charges as being the whole of the actual expenditure for the year, since it was to that which the maintenance adjustment was expressed to relate. In reality, however, the balancing charge merely reflected the costs incurred after the amounts of the advance payments received by the appellant for the year in question had been spent. It was those costs that were material for the purposes of section 20B(1). The tenant would not be liable to pay a balancing charge in respect of any such costs that had been incurred more than 18 months before the demand for the balancing charge, but any amount that was payable and had been paid as an advance payment would be unaffected.
To apply section 20B(1) in that way accorded with the approach of the High Court in Gilje, which had been followed in several decisions of the Lands Tribunal and cited as an authority in the county court: see Islington Borough Council v Abdel-Malek [2008] L&TR 2, Brennan v St Paul’s Court Ltd [2010] UKUT 403 (LC) and Paddington Walk Management Ltd v Governors of Peabody Trust [2010] L&TR 6. Although a decision of the High Court was not binding on an LVT, because there was no hierarchical relationship between them, in view of the relative standing of the two jurisdictions it was difficult to conceive of circumstances in which an LVT could be justified in rejecting the authority of a High Court decision. There was no such justification in the instant case.
Applying the correct approach, the costs to which the balancing charges in the instant case related had been incurred only after the amounts received as advance payments had been spent. None of those costs had been incurred more than 18 months before the invoice for the balancing charge for the relevant year. Accordingly, none of them was rendered irrecoverable under section 20B(1).
Justin Bates (instructed by the legal department of Peverel Property Management, of Luton) appeared for the appellant; the respondent did not appear and was not represented.
Sally Dobson, barrister
