Landlord and tenant – Service charge – Major works – Respondents carrying out major works to blocks of flats – Appellant tenants disputing liability to pay contribution to works – Section 20B of Landlord and Tenant Act 1985 – Whether appellants notified of the relevant costs incurred by respondents within 18 months of them being so incurred – Leasehold valuation tribunal finding appellants so notified – Appeal allowed in part
The appellants were the tenants of a flat located in one of two blocks in respect of which the respondent landlords carried out major works between November 2004 and August 2005. The respondents had followed the consultation procedure under section 20 of the Landlord and Tenant Act 1985 and, after awarding the contract for the works, had notified the appellants that their estimated contribution to the cost would be £44,657.40. In October 2004, they sent an invoice to the appellants for an “estimated charge” for that amount.
The respondents made payments under the contract between December 2004 and August 2005, with further payments in March 2006 and March 2007. The final account was agreed with the contractor in June 2007, although it was not issued until September 2008.
In the meantime, the respondents had written to the appellants in March 2005, requesting payment of the £44,657.40 plus £500 for miscellaneous works to the appellants’ property. They had sent identical letters in August 2005 and February 2006. In October 2008, the respondents wrote to the appellants with the final account for their flat, in which the required contribution was reduced to £39,049.43.
The appellants applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of their liability for the sums demanded. They contended that the charges were not recoverable because the respondents had not complied with the requirement, under section 20B(2), to notify the appellants in writing within 18 months of the relevant costs being incurred that those cost had been incurred and that the appellants would be required under the terms of their lease to contribute to them by payment of a service charge.
The LVT held that no liability to pay arose under the invoices or requests for payment issued by the respondents since they were not a valid service charge demand within the terms of the appellants’ lease. However, it rejected the appellants’ case on section 20B, holding that the respondents’ letters in 2005 and 2006 satisfied the requirements of that section. The appellants appealed on that issue.
Held: The appeal was dismissed in part.
The question for determination was whether, should the respondents serve a demand that complied with the provisions of the lease for the amount of £39,049.33 that the LVT had determined to be payable, section 20B would prevent its recovery. It would not prevent the respondents from recovering the greater part of that sum, since they had given valid notifications to the appellants within 18 months of the relevant costs being incurred. The costs could not be said to have been “incurred” by the respondents solely because their liability to pay those costs had arisen on completion of the works in August 2005. Costs were “incurred” by the landlord within the meaning of section 20B only when payment was made, rather than when the obligation to pay arose. However, some payments under the contract had been made by the time each letter from 2005 onwards had been sent, and the greater part of the payments had been made by the time of the letters sent after completion of the works.
The letters sent from March 2005 related to works that were under way or had been completed, and for which the respondents had paid the contractors. Each letter referred to the amount of £44,657.40 in respect of works that were those being carried out, or had been carried out, at the date of the letter, and for which the respondents had incurred costs through paying the contractors. Although the amount of £44,657.40 was an overstatement of those costs, that did not prevent a demand from being a notification for the purposes of section 20B. Given that the purpose of section 20B, which was to avoid tenants being faced with a bill for expenditure of which they had not been sufficiently warned, a demand that overstated the costs none the less fulfilled its function: Gilje v Charlgrove Securities Ltd [2003] EWHC 1284 (Ch); [2003] 3 EGLR 9; [2003] 36 EG 110 applied.
That outcome accorded with the merits of the case. The appellants had been consulted in advance about the proposed contract and its cost and had been informed of their estimated liability for the works, which had been carried out to their satisfaction for a final amount less than that originally estimated.
The exception was that, after making the last two payments in March 2006 and 2007, the respondents had served no further demand on the appellants until October 2008, more than 18 months after either payment. It followed that the appellants could not be liable for any of the costs to which those payments related. If any part of the final two payments related to works for the cost of which the appellants were potentially liable, such amount would not be recoverable and would fall to be deducted from the overall sum of £39,049.33.
Andrew Skelly (instructed by direct access) appeared for the appellants; Simon Butler (instructed by direct access) appeared for respondents.
Sally Dobson, barrister
