Landlord and tenant – Service charges – Recoverability – Parties in dispute concerning arrangements for supply of utilities and metering of gas, electricity and water consumption – No contractually valid demand made for such costs as service charges – Appellant seeking costs as general service charge within statutory time limit – Whether demand necessary to comply with provisions of lease – Whether costs part of service charge provisions – Whether appellant permitted to recover share of litigation costs under lease – Appeal dismissed
The appellant landlord owned the head leasehold interest in the residential parts of a 33-storey building in Canary Wharf, London, E14. The 12 lower floors comprised a hotel and 57 associated apartments. The 21 upper floors comprised 158 residential flats, a large number of which were let on 999-year underleases to the respondent. The flats were then sub-let to residential occupiers.
In a long-running dispute concerning the arrangements for the supply of utilities and the metering of consumption of gas, electricity and water, the First-tier Tribunal (FTT) decided that costs incurred by a third party for reading the meters and calculating the sums due and passed on by the landlord as “standing charges” were not recoverable by the appellant under section 20B(1) of the Landlord and Tenant Act 1985. In a separate decision, the FTT decided that the terms of the leases did not permit the appellant to claim its legal costs from the respondent in respect of the proceedings. The Upper Tribunal (UT) dismissed the appellant’s appeal on both issues: [2020] UKUT 163 (LC).
The appellant appealed. The main issues concerned: (i) the application and proper interpretation of section 20B(1), which imposed an 18-month time limit on the service of a demand for the recovery of service charges running from the date when the relevant costs were incurred, where a demand for payment had been served on the respondent during the 18-month period, but the demand was made under the wrong provisions in the lease, and the sum in question had never been the subject of a contractually valid demand as a service charge; and (ii) the construction of cost recovery provisions in the leases, in reliance on which the appellant sought to recover from the respondent a proportionate share of its own legal costs incurred in the present litigation.
Held: The appeal was dismissed.
(1) Section 20B(1) of the 1985 Act provided for “a demand for payment of the service charge” within the prescribed 18-month period. A demand for the purposes of section 20B(1) had to be a contractually valid demand which was served in accordance with the service charge provisions of the relevant lease. It was of the nature of a limitation period that it prevented reliance upon a cause of action or other legal right which the claimant would otherwise be entitled to assert. That was reflected, in the present context, by the requirement that the relevant costs should have been “taken into account in determining the amount of any service charge”, which could only be interpreted as a reference to the operation of the contractual service charge machinery in the lease, subject to any relevant statutory constraints.
Similarly, the consequence, if the 18-month period had expired, that “the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred”, presupposed that the tenant would be liable to pay the relevant portion of the service charge had the period not expired. Again, such liability could only arise if the amount in question were one which the tenant would otherwise be contractually liable to pay. If that was both the natural and the correct reading of the language of section 20B(1), it could not make any difference if the amount in question was in fact demanded from the tenant otherwise than as a component of the service charge, and a fortiori, if it had never been the subject of a valid contractual demand at all. But that, it was now conceded by the respondent, was the position in the present case: Skelton v DBS Homes (Kings Hill) Ltd [2017] EWCA Civ 1139; [2017] EGLR 41 applied. Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168; [2011] 1 WLR 3014 followed.
(2) Section 20B was enacted in the light of the 1985 report of the Committee of Inquiry on the management of privately owned blocks of flats but was only partly based on its recommendations and did not include a general power of dispensation based on reasonableness. Instead, the section as enacted laid down a bright line rule in subsection (1), to which there was only a limited exception in subsection (2), which it was rightly conceded could not apply in the present case. That structure might sometimes produce results which appeared harsh, but that was inherent in almost any limitation provision.
The basic 18-month period clearly reflected a policy decision that tenants should know where they stood in relation to potential service charge liability within a relatively short period of the relevant costs having been incurred. As a general policy objective, that was exclusively a matter for parliament, and it was not for the courts to criticise it. It had the effect that landlords knew where they stood, and had to ensure that they acted in accordance with the terms of the service charge provisions if they were not to be at risk of being unable to recover charges through failure to serve a valid demand. The problem in the present case was that the appellant failed to construe correctly and apply the service charge provisions contained in the leases, against a backdrop of serious overcharging and defects in the system for metering the consumption of utilities at the building.
Accordingly, the UT had correctly concluded that there had to be service of a contractually valid demand to stop time running under section 20B(1). No demand for payment of the third party’s charges as service charges had ever been made, and that was the end of the matter.
(3) Further, the UT had been entitled to conclude that the appellant’s costs in the tribunal proceedings were not recoverable under the lease. There was no term of the lease which enabled the appellant to recover its costs of the litigation. The UT came to the right conclusion on that point, for the reasons it gave.
Justin Bates and Kimberley Ziya (instructed by DLA Piper UK LLP) appeared for the appellant; Lesley Anderson QC and Lina Mattsson (instructed by Penningtons Manches Cooper LLP) appeared for the respondent.
Eileen O’Grady, barrister
