Section 20B(1) of the Landlord and Tenant Act 1985 prevents landlords from recovering service charges for items of expenditure incurred more than 18 months previously, 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.
The issue that arose in Westmark (Lettings) Ltd v Peddle [2017] UKUT 449 (LC); [2017] PLSCS 210 was: where a cost is incurred by a superior landlord in providing services for which a charge is passed down a chain of intermediate landlords before ultimately being paid by the occupational leaseholder, do successive 18 month time limits apply to each demand made in the chain? Or does section 20B(1) impose a single 18 month time limit from the date on which the cost was first incurred by the superior landlord?
The First Tier Tribunal ruled that the 18 month period ran from the date on which service charge costs are first incurred by the superior landlord responsible for the provision of services. It considered that once a cost had been incurred by the head landlord “it cannot cease to be a cost and somehow arise a second time when, at a later date, the intermediate landlord or a management company are called upon to pay”. On the facts of this case, a decision to the contrary could result in leaseholders being required to contribute towards costs incurred as much as four and a half years before they received a demand, which would negate much of the protection that section 20B(1) was intended to provide.
The Upper Tribunal has overturned the decision, ruling that, in contractual terms, each of the landlords in the chain had a distinct liability of its own. OM Property Management Ltd v Burr [2013] EWCA Civ 479 confirmed that costs are incurred when the landlord providing the service receives a bill from its supplier or contractor. And, in the language of section 20B, a cost is incurred by each landlord at each level in the contractual chain when it receives a demand for payment of its liability – and not on the earlier date on which the superior landlord incurred its own separate cost in order to provide the service.
Whichever construction was given to section 20(1)(B), potentially harsh and unforeseen consequences were liable to ensue. Allowing successive periods of up to 18 months could negate the protection of section 20(1)(B) and seriously impair the possibility of effective challenges to the cost of inadequate services several years down the line. But, if the 18 month period ran from the date on which a superior landlord incurred a cost, an intermediate landlord might fall foul of section 20B(1) before it could make any demand of its own. At the later stages in the chain it would become increasingly difficult to deliver a demand within the diminishing time available. It might also be contractually impossible to make a valid demand within a very short period of time, as where, for example, complex apportionments were required, or certification procedures had to be completed. And, in the judge’s view, the risk to intermediate landlords of non-recovery was more serious than the risk to occupational leaseholders of being required to pay for a service long after it was provided, despite all the consequent uncertainty in the interim.
Allyson Colby, property law consultant
