Time limit for demanding Service Charges

Friday, December 14, 2018

Section 20B(1) of the Landlord and Tenant Act 1985 provides that a service charge demand must be issued within 18 months of the costs making up the service charge being incurred.

The purpose of the rule is to prevent Tenants being faced with demands years after the costs became due. Failing to serve the demand within the stipulated time will mean that the Tenant is not be liable to pay the demand. 

However, Landlords sometimes does not know or cannot quantify the sums Tenant are required to pay and are unable to issue demands within 18 months. In such circumstances Landlords may serve a notice advising Tenants that costs are going to be incurred and that the Tenant will subsequently be required to contribute to them by way of a service charge payment – Section 20B(2) Landlord and Tenant Act 1985. Such notices have to be served within the 18 month period, beginning with the date when the relevant costs were incurred. Compliance with Section 20B(2) means that the provisions of Section 20B(1) will not apply.

Requirement of a Section 20B(2) Notice

In London Borough of Brent v Shulem B Association Ltd [2011] EWHC 1663 (Ch), the Court gave guidance on the requirements for satisfying section 20B(2).  In literal terms Section 20B(2) requires the Landlord to state the costs it has actually incurred. It is not sufficient simply to advise Tenants that their Landlord expects to incur a particular cost.

It may be that the Landlord has difficulty giving an exact amount of the costs that have been incurred. The practical solution for the Landlord is to serve a notice, which specifies a figure for the costs the Landlord would accept as a limit on the cost ultimately recoverable. In choosing this figure, the Landlord may want to include a higher amount. A higher amount will not prejudice an actual service charge demand based on a smaller sum and would cover the lower amount.

The Notice must also indicate that the Tenant will subsequently be required under the terms of the Lease to contribute to the costs by the payment of a service charge. The wording of the statutory requirement does not require the Landlord to inform the Tenant what sum the he will ultimately be expected to pay. Accordingly, the Notice does not need to state what proportion of the costs the Tenant will be liable for.

How does it affect you as the Landlord (and Management Company)?

Invalid Demands – It is essential that Landlords take care when serving demands that are compliant with the Tenant’s Lease, as time continues to run from when costs were incurred. Leases often set out preconditions to the payment of service charges; it is paramount that these preconditions are complied with. Any failures could leave the service charges being irrecoverable.

Valid Section 20B Notice – As can be seen it is imperative the Landlord or its agent complies with Section 20B and the consequences for failing to comply are far reaching and can impact the development.