Landlord and tenant – Service charge – Section 20B(1) of the Landlord and Tenant Act 1985 – Appellant intermediate landlord appealing against decision of First-tier Tribunal that respondent leaseholders not liable for certain service charges – Whether 18 month time limit on demands for service charges repeated for each intermediate landlord – Appeal allowed
The appellant sat in the middle of a chain of leasehold relationships in respect of Queen Square, Bristol, a mixed modern development of offices, shops and residential units. The development included 29 leasehold flats on five upper floors. Its superior landlords were the trustees of the Epic (Colmore Row) Trust (Epic) and beneath the appellant in the chain was the management company and beneath it the respondent occupational leaseholders of the individual flats. The appellant had been in dispute with Epic for many years over the service charge payable by the appellant which resulted in a delay in passing the costs down the chain through the service charge in the occupational leases.
Section 20B(1) of the Landlord and Tenant Act 1985 imposed a time limit on the making of demands for service charges, by providing that a tenant was not liable to pay so much of the “relevant costs” included in a service charge as were incurred more than 18 months before a demand for payment of the service charge was served on the tenant.
An issue arose whether, where a cost was incurred by a superior landlord in providing services for which a charge was passed down a chain of intermediate landlords before ultimately being paid by the occupational leaseholder, successive 18 month time limits applied to each demand made in the chain; or whether section 20B(1) of the 1985 Act imposed a single 18 month limit from the date on which the cost was first incurred by the superior landlord.
The First-tier Tribunal (FTT) decided that the respondents were not liable to pay service charges for accounting periods before 31 May 2014 because more than 18 months had elapsed between the date on which the relevant costs had first been incurred by Epic for the provision of services and the receipt by the respondents of demands for payment from the management company.
The appellant appealed. Both Epic and the management company were joined as parties to the proceedings. Epic was represented before the FTT. Neither party took part in the appeal.
Held: The appeal was allowed.
(1) For the purposes of section 20B(1), costs were incurred when the landlord providing the service received a bill from its supplier or contractor: see OM Property Management v Burr [2013] 2 EGLR 84; [2013] EGILR 14. The effect of section 20B was to provide a time limit running backwards from the date of a demand and to relieve the tenant from liability in respect of so much of a service charge as “reflects” “relevant costs … incurred more than 18 months before” the demand which were “taken into account in determining the amount of” the service charge. Although the section did not expressly say so, it was obvious that the tenant who was to be relieved of liability to pay the service charge was the tenant who received the demand. That tenant was the only person mentioned in the section and it was notable that there was no reference to the landlord who made the demand. The reference in section 20B(1) to a service charge which “reflects” relevant costs, and the description of costs as having been “taken into account in determining the amount of any service charge”, was consistent with the reference in section 18(1) to a “service charge” being an amount payable “directly or indirectly” for services. The language of both provisions allowed for some separation between the person who incurred the cost of providing the service and the person entitled to receive payment of the service charge. In the context of a service charge payable by the tenant referred to in section 20B(1), on whose liability the 18 month time limit might bite, relevant costs therefore included costs incurred by a superior landlord. However, they also included costs incurred by the immediate landlord. The service charges payable by the respondents in this case therefore reflected two streams of costs incurred by different landlords at different levels in the chain of title.
(2) In the language of section 20B, at each level in the contractual chain, a cost was incurred by each landlord in turn when it received a demand for payment of its liability. In terms of section 18, the payments made up the chain by the appellant and the management company were service charges. They were payable “directly or indirectly, for services” etc and they varied according to the relevant costs. Each of the appellant and the management company was a “tenant of a dwelling” as defined in section 18(1) to include an intermediate landlord holding a lease of a building which contained a number of dwellings: Ruddy v Oakfern Properties Ltd [2006] 3 EGLR 30 applied.
(3) The relevant costs taken into account in determining the service charges payable by the respondents were the costs incurred by the management company under the concurrent underlease. There was no reason to treat the costs incurred by the appellant and the management company as if they were costs incurred at any earlier time than when each of those companies received a demand for payment from its superior landlord. A new relevant cost arose at each stage, notwithstanding that at each stage the new cost was payable in respect of the same service provided by Epic and its contractors. It followed that section 20B(1) had a renewed effect at each level in the chain of liabilities.
(4) Accordingly, for the purpose of section 20B(1) a relevant cost was incurred when an intermediate landlord received a demand for payment from its own landlord for services provided by it or a superior landlord, and not on the earlier date on which the superior landlord incurred its own separate cost of providing those services. The FTT had reached the wrong conclusion and the period of 18 months referred to in section 20B(1) ran, in this case, from the date of the invoices delivered by or on behalf of the management company on 30 November 2015.
Justin Bates (instructed by CMS Solicitors) appeared for the appellant; The respondents appeared in person.
Eileen O’Grady, barrister
To read a transcript of Westmark (Lettings) Ltd v Peddle and others, click here
