Section 20B of the Landlord and Tenant Act 1985 prevents landlords from recovering residential service charges for items of expenditure that are more than 18 months old, unless the landlord has notified its tenants in writing within that 18-month period that the relevant costs will be included in their service charge contributions at a later date.
Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168 provides valuable guidance on the interpretation of these requirements, especially since previous tribunals and county court decisions have been inconsistent.
The High Court ruled that it is insufficient for landlords to state that they have incurred unspecified costs in respect of work done or services provided. Section 20B operates in tandem with complementary provisions requiring landlords to provide their tenants with estimates before incurring costs in respect of “qualifying works”. These provisions suggest that the requirements in section 20B relate to costs that have actually been incurred – and that landlords must state the precise sum spent so that tenants can budget to pay for them.
What should landlords do if they are unable to confirm the exact amount spent? A statement that a landlord has spent a particular sum will not enable it to recover any additional sums spent even if the landlord warns its tenants that the total might be higher and reserves the right to recover all its costs.
Consequently, landlords should err on the side of caution and specify a figure that will suffice to enable them to recover their actual costs when all uncertainty has been removed. If they state that their costs are £x and they subsequently demand a smaller amount, the statement of the greater sum will include the lesser sum.
Landlords must also notify their tenants that they will be required to pay a contribution through future service charge payments. This does not mean that they must state exactly what their tenants will have to pay. It will suffice to notify tenants that the landlord has incurred costs of £x, even though their leases do not specify the percentage of the total costs that they will have to bear. It is not necessary for the notice to inform tenants of the proportion of the costs that will be passed on to them or what the resulting service charge demand will be.
The judge added some general comments that will assist landlords – and practitioners – to apply section 20B. The 18-month deadline is relatively short and the court cannot extend it. However, landlords can do so unilaterally by notifying tenants in writing that costs have been incurred and will be included in future service charge demands – in which case, time is put at large. There is no further requirement that the landlord’s demand for payment must be made within a specified period and, once a demand has been made, the limitation period under the Limitation Act 1980 will apply.
The decision that the landlord had tried – but failed – to comply with these rules highlights the importance of understanding and adhering to the statutory requirements to maximise the recovery of service charge expenditure.
Allyson Colby is a property law consultant
