Property in dispute - July 2011

This article examines the provisions in the Landlord and Tenant Act 1985 (“the Act”) which govern how service charge operates in residential leases and in particular the time limits for making service charge demands or serving a notice of costs incurred.

Summary

If a landlord issues a demand for service charge after the completion of the works the demand must be issued within 18 months. If later, the landlord cannot recover the costs at all unless a notice has been served during the 18 month period stating the actual costs incurred and confirming that the tenant will be required to contribute to them by payment of the service charge as per the terms of the lease.

Consultation

If certain works, known as qualifying works, are carried out to a building, the landlord must consult with the tenants by giving them details of the proposed works and estimates for the works. In simple terms, qualifying works are works of maintenance, repair, renewal, redecoration etc carried out to the building whereby the contract placed by the landlord for these works would require at least one leaseholder to contribute more than £250 to the works. If the landlord fails to consult with the tenants, the landlord will only be able to recover £250 from each tenant, unless the Leasehold Valuation Tribunal waives the consultation requirements.

Issuing Service Charge Demands

Section 20B(1) of the Act says that when service charge demands are issued after completion of the works, the landlord must issue the demand within 18 months. Section 20B(2) of the Act says that if the demand is provided later than this, the landlord cannot recover the costs at all, unless a notice has been served during the 18 months stating that costs had been incurred and the tenant would subsequently be required under the terms of the lease to contribute to them by the payment of a service charge.

Until recently there has been no clear guidance on what should be included in a notification under section 20B(2). The following case provides clear authority on this issue.

Case - London Borough of Brent v Shulem B Association Ltd 2011

The landlord owned five blocks of flats. The tenant had leases of 15 of the flats and the leases were in broadly the same form.

By clause 2(6) of the lease, the tenant covenanted with the landlord to pay and contribute a proportion of the expenses of repairing the exterior of the flat.

In around 2003, the landlord took the view that extensive works were required to the exterior of the building.

The works were qualifying works and therefore the landlord sought to comply with the consultation requirements by sending estimates of costs for the works on 12 March 2004 and stated that the tenant would be required to pay a proportion of the cost once the works had been completed.

Under the building contract for the works, a contract administrator valued the work and issued certificates of valuation as the work progressed. The certificates identified the amounts payable by the Landlord to the contractor and were issued between July 2004 and April 2005.

On 23 February 2006, the landlord wrote to the tenant seeking payment of the tenants proportion of the estimated costs. The tenant failed to pay any sum. On 15 December 2006, the landlord wrote to the tenant enclosing the actual invoice for the major works. The tenant did not pay.

The Landlord issued proceedings against the tenant. The tenant argued that the costs were incurred by the landlord more than 18 months before the demand of December 2006, and were therefore irrecoverable under section 20B(1) of the LTA 1985. The tenant applied to have the landlord's claim struck out.

The county court dismissed the tenant's strike out application, on the basis that the letter of February 2006 was notice of the costs for the purposes of section 20B(2) of the Act.

The tenant appealed and the High Court allowed the appeal:

• The letter of February 2006 was not a valid demand as set out in clause 2(6) of the lease, because it did not ask for a proportion of the landlord's expenses but asked for a contribution based upon figures which had not, or had not necessarily, represented the landlord's expenses. In addition, the letter had not conformed to the requirements of a demand for the purposes of clause 2(6).
• Section 20B(1) presupposed that a valid demand had been made under the contractual provisions of the lease. As the letter was not a valid demand under the lease, it could not be a valid demand for the purposes of section 20B(1) of the Act.
• The letter was not a written notification for the purposes of section 20B(2). Section 20B(2) of the Act was to be interpreted so that the written notification had to state a figure for the costs which had already been incurred by the landlord. The letter contained an estimate of the costs, but did not state what the actual costs were. In addition it did not inform the tenant that it would subsequently be required under the terms of the lease to contribute to those costs by the payment of a service charge.

It was held that the letter of 23 February 2006 was not a demand for the purposes of clause 2(6) of the lease, nor a demand for payment of the service charge within s 20B(1) of the Act, nor a notification in writing for the purposes of s 20B(2) of the Act.