Service charges: when it pays to demand properly and in time

Elizabeth Dwomoh explains why compliance with the contractual machinery of the lease is crucial when making service charge demands. Key point A demand for the purposes of section 20B(1) of the Landlord and Tenant Act 1985 must be a contractually valid demand Must a demand for payment of service charges within the meaning of section 20B(1) of the Landlord and Tenant Act 1985 be a demand that complies with the service charge provisions of the lease? In particular, is it necessary for the amount in question to be demanded as part of the service charge pursuant to the relevant contractual machinery contained in the lease? The statutory provisions Section 20B(1) imposes a strict time limit on landlords to serve a valid demand for the payment of service charges on tenants when relevant costs are incurred. If the landlord fails to serve the demand within the prescribed time limit, the tenant is not liable to pay.  Section 20B(2) provides the landlord with a limited exemption from the sanction imposed by section 20B(1). A landlord can still recover payment if they provide the tenant with written notification that the relevant costs have been incurred within the same 18-month period and that a subsequent demand for payment will be made, under the terms of the lease, for the tenant to contribute to them by the payment of a service charge. In Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168, the High Court held that a “valid demand” for the purposes of section 20B was a demand that complied with the relevant contractual provisions of the lease that regulated the making of such demands. This was approved by the Court of Appeal in Skelton v DBS Homes (Kings Hill) Ltd [2017] EWCA Civ 1139; [2017] EGLR 41. In No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119; [2021] PLSCS 133, the Court of appeal was required to determine if Brent was correctly decided. The parties No 1 West India Quay is a large mixed-use building situated in Canary Wharf, London E14. No 1 West India Quay (Residential) Ltd (WIQR) owns the head leasehold interest in the residential parts of the building. East Tower Apartments Ltd (ETAL) is a tenant of WIQR. ETAL now owns 30 flats in the building, which are held on 999-year underleases in substantially the same form. WIQR and ETAL have been engaged in protracted litigation in respect of the provision and billing of services related to the management of the building. The present claim concerned the supply of energy to the building. Under the terms of ETAL’s leases, WIQR could specifically recover the costs of the energy supply consumed by each of the flats through the service charge. Further, the leases contained a general service charge provision which allowed the recovery on demand of “any other sums due to the Lessor under the terms hereof”. Due to the complexity of the metering system in use at the building, a third-party contractor was engaged to gather usage data, calculate the charges payable by each occupier and provide statements for the purpose of billing the tenants. Between 2008 and 2012, the third-party contractor added an amount termed a “standing charge” in the statements, to cover the services it rendered in reading the meters and calculating the bills.  The previous decisions The First-tier Tribunal found that the standing charges could be demanded as part of the general service charge provisions in the lease, but this had not been done. Alternatively, they were payable on demand as part of the energy consumed for the flats.  Before the Upper Tribunal (Lands Chamber), ETAL argued that the standing charges were only recoverable as part of the annual service charge. The UT agreed. Further, the UT found that no proper demands had been made.  The UT further observed that if WIQR wished to recover the standing charges, it would need to include them in an end-of-year service charge reconciliation. No such reconciliation had been carried out. Even if such an exercise had been undertaken, it was open to ETAL to rely on section 20B(1) to argue that the charges were incurred more than 18 months before they were demanded. It was common ground that no valid written demand had been served on ETAL that complied with section 20B(2).  The UT found that it was bound to follow Brent. As WIQR failed to make any valid service charge demand in accordance with the contractual provisions of the leases, ETAL was not liable to pay the standing charges. Brent upheld The Court of Appeal upheld Brent and dismissed WIQR’s appeal in respect of the payability of the standing charges. It did not hesitate in finding that a demand for the purposes of section 20B(1) must be a contractually valid demand which had to be served in accordance with the service charge provisions of the relevant lease.  Even in the absence of authority, the Court of Appeal observed that there was no other logical conclusion. The purpose of a limitation period was to debar a party who would otherwise have a valid cause of action from asserting the same.  Elizabeth Dwomoh is a barrister at Lamb Chambers Image © Pixabay