Section 20B of the Landlord and Tenant Act 1985 imposes statutory time limits on the ability of landlords to make service charge demands. The policy aim behind section 20B was to ensure that tenants were forewarned in respect of service charge demands and not caught by surprise with demands made years after the costs of the same had been incurred.
In particular, section, 20B(1) prevents a landlord from demanding service charges if the costs of such items were incurred more than 18 months before the demand was made. Section 20B(2) provides landlords with a means of protecting their position by notifying long leaseholders in writing that those costs will subsequently be recovered through the service charge provisions of the lease.
In Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168, the High Court determined that a valid “demand” in section 20B(1) meant a demand that complied with the relevant contractual provisions within the lease that regulated the making of such demands. This interpretation of section 20B(1) was adopted 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] UKUT 163 (LC), the Upper Tribunal (Lands Chamber) has recognised that the “expansive” approach to the interpretation of section 20B(1) in Brent v Shulem B can cause injustices.
The parties have been in a long-standing dispute in respect of the provision of electricity to No.1 West India Quay, London, E14. The building is a mixed-use commercial and residential building. Under the terms of the lease, the landlord could recover the costs of energy supply through the service charge, as well as the costs of other services provided to the building.
Owing to the complex nature of the electricity metering in the building, specialist contractors were engaged by the freeholder for the purposes of billing. From 2008 to 2012, the costs of the services provided by the contractors was added as a surcharge to the electricity bills provided to tenants. The First-tier Tribunal upheld the freeholder’s billing practice. On appeal, the UT determined that the freeholder was only able to recover the costs incurred in using the services of the specialist contractors as an item of service charge.
The freeholder appealed. It argued that if it could only recover the contractor’s costs through the service charge provisions of the lease, it would be prevented from doing so for the period 2008 to 2012 because more than 18 months had passed since those costs were incurred. Additionally, no valid written demand had been served that complied with section 20B(2).
The UT had some sympathy for the freeholder’s argument that Brent v Shulem B created potential unforeseen bear traps for landlords. It meant that the time limit under section 20B only stopped running on the making of a valid contractual demand. This effectively created an 18-month limitation period for the making of such demands – a much shorter limitation period than would otherwise apply to contractual payment obligations. The UT observed that, owing to Brent v Shulem B being approved in Skelton, it was bound to follow it.
The freeholder has appealed to the Court of Appeal. The appeal is due to be heard later this year. It remains to be seen whether the Court of Appeal will follow Brent v Shulem B.
Elizabeth Dwomoh is a barrister at Lamb Chambers
