Legal Update: Section 20B of the Landlord and Tenant Act 1985 (“the Act”) relating to service charge demands for residential properties

Essentially, section 20B of the Act provides that:

1. if service charges were incurred more than 18 months before a demand for payment is served on the tenant then the tenant is not liable to pay; unless
2. the tenant was notified in writing (within 18 months of the costs being incurred) that the costs have been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge

The recent High Court case of the London Borough of Brent v Shulem B Association Limited clarifies the degree of formality that is required when serving a demand.  In this case, the landlord (being the London Borough of Brent) was the freehold owner of 5 blocks in which Shulem held 15 residential leases.  In or around February 2004 the landlord decided to carry out major works to the properties.  The works were caught by Section 20 of the Act which requires a landlord to comply with the statutory consultation procedure.

In March 2004 the landlord served letters on all of the leaseholders informing them of its intention to carry out the major works and informing them that they will be required to contribute to the cost of the works.  The letter provided an estimate of costs in the region of £20,000 per flat.  Practical completion of the works took place around March 2005.

In February 2006 the landlord wrote to the leaseholders with an “invoice” for the major works.  The letter stated that the “actual costs have not been calculated” and that the invoice was based on the estimate given in March 2004.

In December 2006 the landlord wrote to the tenants enclosing the actual invoices.

The leaseholder withheld payment on the basis that the only “valid demand” was the one sent in December 2006 and that this was out of time!

The Court held that:

1. The February 2006 demand did not comply with the requirements of the lease and as such, could not be a valid demand under section 20B(1) of the Act.  The Act only applies if there is a valid demand pursuant to the terms of the contractual agreement between the parties.
2. In any case, the Court considered whether the February 2006 demand could be taken to be a written notification in accordance with Section 20B(2) of the Act.  However, it was held not to be a valid notification as it did not confirm the “actual” costs incurred or inform the leaseholders that they would have to make payment.  The letter merely stated the previous estimated figures.
3. The only valid demand was the one sent in December 2006 and this was out of time as it was not sent within 18 months of the costs being incurred.

The lesson to be learned from this case is that:

1. The demand requiring payment must firstly be in accordance with the terms of the lease.
2. A demand must be sent within 18 months of the costs being “incurred” and must inform the leaseholders that the costs have been incurred, the amount of the costs incurred and that they will be required to pay a contribution by way of service charge.  The Court held that if the landlord is not aware of the exact costs incurred at that date the landlord can “err on the side of caution and include a figure which it feels will suffice to enable it to recover in due course its actual costs”.  A landlord cannot rely on a previous “interim” statement even if the figure in the interim statement is higher.

For further information concerning service charge demands and the statutory consultation procedure under the Act please contact us at info@boltburdon.co.uk

Please see our previous blogs relating to landlord’s responsibilities in relation to ground rent service charge demands:

Ground rent “demands”?

Services Charges: Striking a balance