Landlord and tenant – Service charge – Landlord and Tenant Act 1985 – Water company mistakenly billing original developer for water supplied to blocks of flats rather than appellant as current landlord – Water company invoicing appellant for arrears once mistake discovered – Whether appellant entitled to recover those charges from respondent leaseholders of flats through service charge – Whether precluded from doing so by section 20B of 1985 Act on ground that those costs “Incurred” more than 18 months before first demanded from leaseholders – Appeal allowed
The respondents were the long leaseholders of flats in a modern development in London SW19 comprising three blocks of flats built between 2005 and 2006. The appellant was the landlord under those leases, having acquired the freehold of the development in October 2006. For several years, the water supplier for the development invoiced the appellant only for water used in one of the three blocks of flats, while sending invoices for the other two blocks to the original developer. The developer neither paid those invoices nor passed them on to the appellant. Meanwhile, the appellant’s managing agent, in the mistaken belief that the invoices it received related to all three buildings, apportioned those sums and collected them through the service charges payable by the leaseholders of the flats under the terms of their leases.
From April 2010, after the mistake was discovered, the water supplier sought to recover arrears of more than £65,000 from the appellant, which in turn sought to pass them on to the leaseholders through the service charge. The respondents applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985 Act, for a determination of their liability. The LVT held that, by virtue of section 20B(1) of the 1985 Act, the leaseholders were not liable for the historic water bill to the extent that it represented invoices first raised before January 2009, since those costs had been incurred more than 18 months before they were demanded by the appellant in its estimated service charge for the year from June 2010.
The appellant appealed. It contended that it had not “incurred” the disputed water charges until it first received an invoice for them in 2010 and that invoices sent to the developer were irrelevant when applying the 18-month limitation period under section 20B.
A further issue arose as to whether recovery was affected by a provision in the lease to the effect that a certificate signed by the lessor was to be conclusive of the amount of the service charge or service charge adjustment for any service charge year.
Held: The appeal was allowed.
Costs would be “incurred” for the purposes of section 20B of the 1985 Act when the landlord became liable to pay them, which was normally when the bill in question was first presented for payment to the landlord for the time being:OM Property Management Ltd v Burr [2013] EWCA Civ 479; [2013] 1 WLR 3071; [2013] EGILR 14; [2013] 2 EGLR 84. The “relevant costs” with which section 20B was concerned were costs or estimated costs incurred or to be incurred on behalf of the landlord or a superior landlord: see section 18(1). Costs incurred by a former landlord, in respect of a period after it ceased to be landlord, were therefore not relevant costs, unless they were costs for which the landlord for the time being was also liable in its own right. Where successive landlords were liable for the same costs, it was the liability of the landlord for the time being that was material, since only costs incurred by a person in the capacity of landlord could be included in the service charge. Section 142 of the Water Industry Act 1991 did not appear to create a liability to pay for water until a demand was received by the occupier. The invoices addressed to the developer after October 2006, when it had ceased to be the landlord for the time being, were a contractual liability of the developer and gave rise to no liability on the part of the appellant. The appellant had no existing liability to make a payment for the water supplied to two of the blocks of flats until April 2010 at the earliest. On the assumption that section 142 of the 1991 Act created a liability on the appellant to pay sums demanded of it for water supplied to those blocks, no relevant cost was incurred by the appellant, for the purposes of section 20B, until it received the first demands for payment in April and June 2010.
The appellant was not precluded from recovering the historic water charges by the lease provisions regarding the conclusive nature of service charge certificates. Although a certificate given by the appellant, recording expenditure on water and sewage charges for the year ending June 2010, might be conclusive of the amounts actually expended in that year, that did not prevent the inclusion in a future certificate of expenditure in that future year that related to the water supplied in a previous year. The appellant could, when calculating and certifying the service charge adjustment (representing any shortfall between the amount paid as service charge and the actual expenditure) for the year ending June 2011 and for subsequent years, include expenditure actually incurred in those years in discharging any liability that the appellant might be shown to have for water supplied in the period from October 2006 until it began to receive demands in its own right in April and June 2010.
Per curiam: Section 27A(6) of the 1985 Act was potentially relevant to the effectiveness of a purportedly binding certificate issued by the landlord as to the amount of the service charge. An agreement by the tenant of a dwelling was rendered void by section 27A(6) so far as it purported to provide for a determination of any question that could be the subject of an application to the first-tier tribunal under section 27A(1) in a particular manner or on particular evidence. Since the amount payable as a service charge could be the subject of such an application, the landlord’s certificate could not bind the tenants because, to that extent at least, it would be avoided by section 27A(6). However, section 27A(6) avoided only an agreement by the tenant and it remained open for consideration whether it had any effect on the binding force of a certificate as against a landlord.
Stephen Murch (instructed by BTMK Solicitors LLP, of Southend-on-Sea) appeared for the appellant; the respondents appeared in person.
Sally Dobson, barrister
