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Service Charge Demands – Clarification at Long Last?

Thursday, 21 September 2017

In the recent case of Skelton v DBS Homes (Kings Hill) Ltd (2017) the Court of Appeal overturned the decision made in the Upper Tribunal and attempted to clarify the position regarding service charge demands and the 18 month rule for residential service charges in accordance with s20B of the Landlord and Tenant Act 1985.

So what does s20B say? Essentially it provides that 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 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.

Whilst this may sound straightforward, many cases have been brought to the Courts for clarification on the requirements of a notice and the exact date on which costs are incurred. In London Borough of Brent v Shulem B Association Limited [2011] EWHC 1663 (Ch) clear guidance was provided on what should be included in a notification under section 20B(2).
In the recent case of Skelton v DBS Homes, the lease provided that the Tenant was required to pay service charges but the liability to do so would not arise until the Landlord had prepared a summary of estimated costs and served it on the Tenant together with a demand in the form of a statement showing the amount payable on account of those estimated costs. The Landlord served demands for payments on account in March 2011, April 2012 and April 2013 but these demands were not accompanied with estimates. In April 2014, the Landlord eventually provided the required estimates for the relevant years. The Tenant argued that the service charge was not payable for the years 1 April–31 March 2010/2011, 2011/2012, 2012/2013 and 2013/2014, on the basis that it had not been demanded in accordance with the lease.

The Upper Tribunal concluded that the demand was valid from the date on which the estimate was served and further ruled that they did not have to be served within 18 months of the expenditure being incurred because they were on account demands. This decision was made on the basis of Gilje v Charlegrove Securities Ltd 2003. However the Court of Appeal held that it was not enough that the tenant had received the information that his landlord proposed to make a demand, there had to be a valid demand for payment of the service charge. In other words, the Court of Appeal concluded that the demands made were not valid as they did not contain with them an estimate for the works to be undertaken. The landlord simply advising the tenant that it will be making a demand is not sufficient to satisfy the legislation.

So what can we learn from this? Landlords must make demands for the payment of service charges before they incur costs in relation to the leasehold property; it is not enough to merely propose a demand will be made. Alternatively, if costs have not yet been incurred the demand must be accompanied by a clear estimate of the cost of works to be undertaken. Landlords need to be careful in relation to s20B as if the rules for serving service charge demands (both under the lease and statute) are not followed, any notice/demand can be deemed invalid and result in a windfall for the tenant.


It appears the Evolving case law saga in relation to s20B continues…


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