Landlord and tenant – Service charge – Landlord and Tenant Act 1985 – Respondent as management company of estate initially receiving and paying gas bills from wrong energy company – Position corrected several years later and higher bill paid to actual gas supplier – Respondent seeking to recover cost of gas from appellant and other leaseholders as service charge – Whether recovery barred under section 20B of 1985 Act on ground that costs not demanded within 18 months of being incurred – Whether costs “incurred” when gas used or when billed by supplier – Costs held to be recoverable – Appeal dismissed
The appellant was the leaseholder of a property on a substantial housing estate managed by the respondent management company. The respondent’s responsibilities included the maintenance of communal facilities, including a leisure centre and a gas-heated swimming pool. It was entitled to recover its costs through a service charge to the leaseholders. Between 2001 and 2007, the respondent mistakenly received and paid gas bills from an energy company that was not in fact the gas supplier to the estate. In 2007, it emerged not only that a different supplier had been supplying the gas but also that a gas meter had been misread, leading to undercharging. The respondent eventually received a refund from the first energy company and paid the sum of £100,289 demanded by the actual supplier. It then claimed that amount from the leaseholders in its service charge accounts for April 2008. The appellant’s share was a little over £300.
In the leasehold valuation tribunal (LVT), the respondent was held to be barred from recovering a large part of the costs of the gas by virtue of section 20B of the Landlord and Tenant Act 1985, on the ground that those costs had been incurred more than 18 months before the respondent served the relevant demand on the leaseholders. The LVT held that the costs were “incurred” when the gas was supplied and the respondent became liable to pay for it, even though the supplier had not invoiced the respondent until a later date. That decision was reversed by the Lands Chamber of the Upper Tribunal, which held that the costs had not been incurred until the date of the relevant invoice from the energy supplier or the date when that invoice was paid; it was not necessary to decide which of those two dates was correct since both were within the 18-month time limit: see [2012] UKUT 2(LC); [2012] 2 EGLR 35; [2012] 18 EG 104.
The appellant appealed. He contended that the Upper Tribunal’s interpretation of section 20B defeated the legislative purpose of protecting tenants from stale demands in respect of expenditure of which they had not been sufficiently warned to set aside provision.
Held: The appeal was dismissed.
There was a difference between a liability to pay and the incurring of costs. As a matter of ordinary language, a liability had to crystallise before it became a cost. That distinction was recognised in the wording of section 20B(1) itself; it was also significant that section 18(2) defined the “relevant costs” by reference to the incurring of costs rather than liability for those costs. The conclusion that costs were incurred only when they were paid or when an invoice or other demand was submitted by the service provider or supplier, rather than when the services were provided or the supplies were made, was further supported by section 19(2). So far as section 19(2) provided that any necessary adjustment to costs incurred should be made by way of repayment, reduction or otherwise, that adjustment could only be made after the amount of the costs had been ascertained, usually by the submission of an invoice or other demand for payment. The incurring of costs entailed the existence of an ascertained or ascertainable sum that was capable of being adjusted by repayment, reduction or subsequent charges. The mere provision of services or supplies did not, without more, entail anything that was capable of being adjusted in that way.
Accordingly, costs were not “incurred”, within the meaning of sections 18, 19, and 20B of the 1985 Act, on the mere provision of services or supplies to the landlord or management company. It was not necessary for present purposes to decide whether costs were incurred on the presentation of an invoice or on payment. That interpretation accorded with the natural and ordinary meaning of the words and was strongly supported by section 19(2). There were no reasons of policy to compel or support a different meaning. Merely to assert that section 20B had been enacted in order to protect tenants from stale claims did not answer the critical question as to the extent of that protection; that question could only be answered by deciding the meaning of “costs incurred”.
The appellant appeared in person; Justin Bates (instructed by the legal department of OM Property Management Ltd) appeared for the respondent.
Sally Dobson, barrister
Landlord and tenant – Service charge – Landlord and Tenant Act 1985 – Respondent as management company of estate initially receiving and paying gas bills from wrong energy company – Position corrected several years later and higher bill paid to actual gas supplier – Respondent seeking to recover cost of gas from appellant and other leaseholders as service charge – Whether recovery barred under section 20B of 1985 Act on ground that costs not demanded within 18 months of being incurred – Whether costs “incurred” when gas used or when billed by supplier – Costs held to be recoverable – Appeal dismissedThe appellant was the leaseholder of a property on a substantial housing estate managed by the respondent management company. The respondent’s responsibilities included the maintenance of communal facilities, including a leisure centre and a gas-heated swimming pool. It was entitled to recover its costs through a service charge to the leaseholders. Between 2001 and 2007, the respondent mistakenly received and paid gas bills from an energy company that was not in fact the gas supplier to the estate. In 2007, it emerged not only that a different supplier had been supplying the gas but also that a gas meter had been misread, leading to undercharging. The respondent eventually received a refund from the first energy company and paid the sum of £100,289 demanded by the actual supplier. It then claimed that amount from the leaseholders in its service charge accounts for April 2008. The appellant’s share was a little over £300.In the leasehold valuation tribunal (LVT), the respondent was held to be barred from recovering a large part of the costs of the gas by virtue of section 20B of the Landlord and Tenant Act 1985, on the ground that those costs had been incurred more than 18 months before the respondent served the relevant demand on the leaseholders. The LVT held that the costs were “incurred” when the gas was supplied and the respondent became liable to pay for it, even though the supplier had not invoiced the respondent until a later date. That decision was reversed by the Lands Chamber of the Upper Tribunal, which held that the costs had not been incurred until the date of the relevant invoice from the energy supplier or the date when that invoice was paid; it was not necessary to decide which of those two dates was correct since both were within the 18-month time limit: see [2012] UKUT 2(LC); [2012] 2 EGLR 35; [2012] 18 EG 104.The appellant appealed. He contended that the Upper Tribunal’s interpretation of section 20B defeated the legislative purpose of protecting tenants from stale demands in respect of expenditure of which they had not been sufficiently warned to set aside provision.Held: The appeal was dismissed. There was a difference between a liability to pay and the incurring of costs. As a matter of ordinary language, a liability had to crystallise before it became a cost. That distinction was recognised in the wording of section 20B(1) itself; it was also significant that section 18(2) defined the “relevant costs” by reference to the incurring of costs rather than liability for those costs. The conclusion that costs were incurred only when they were paid or when an invoice or other demand was submitted by the service provider or supplier, rather than when the services were provided or the supplies were made, was further supported by section 19(2). So far as section 19(2) provided that any necessary adjustment to costs incurred should be made by way of repayment, reduction or otherwise, that adjustment could only be made after the amount of the costs had been ascertained, usually by the submission of an invoice or other demand for payment. The incurring of costs entailed the existence of an ascertained or ascertainable sum that was capable of being adjusted by repayment, reduction or subsequent charges. The mere provision of services or supplies did not, without more, entail anything that was capable of being adjusted in that way.Accordingly, costs were not “incurred”, within the meaning of sections 18, 19, and 20B of the 1985 Act, on the mere provision of services or supplies to the landlord or management company. It was not necessary for present purposes to decide whether costs were incurred on the presentation of an invoice or on payment. That interpretation accorded with the natural and ordinary meaning of the words and was strongly supported by section 19(2). There were no reasons of policy to compel or support a different meaning. Merely to assert that section 20B had been enacted in order to protect tenants from stale claims did not answer the critical question as to the extent of that protection; that question could only be answered by deciding the meaning of “costs incurred”.The appellant appeared in person; Justin Bates (instructed by the legal department of OM Property Management Ltd) appeared for the respondent.Sally Dobson, barrister
