Brent LBC v Shulem B Association [2011] EWHC 1663 (Ch)
Summary
The issue in this case was the requirement for a properly worded s.20B(2) notification.
What is most striking about this case is the court’s solution to the landlord’s predicament if service charge costs have been incurred, but the landlord does not make a demand for payment within the 18 month time limit set by s.20B(1) of the Landlord and Tenant Act 1985.
S.20B, Landlord and Tenant Act 1985
Pursuant to s.20B(1) of the Landlord and Tenant Act 1985, a landlord has 18 months to demand payment of costs which it wishes to put through the service charge. The 18 months run from the date on which the landlord incurs those costs.
If a demand for payment is not made in time, by virtue of s.20B(2) of the Act, the landlord preserves its right to payment if, within 18 months from the date on which it incurs the costs, it notifies the tenant in writing that those costs have been incurred and the tenant will subsequently be required under the terms of his/her lease to contribute to them by the payment of a service charge.
Facts
The local authority landlord carried out major works, and in February 2006, after the works had been completed, sent each tenant a letter informing them that the actual cost of the works had not yet been calculated. It referred to an attached schedule setting out the amount which it estimated each tenant would have to contribute to the works by way of service charge, but warned that the actual costs might be greater than those shown in the schedule.
In December 2006 the landlord sent each tenant a second letter notifying them of the actual cost of the works and the amount which they would have to contribute by way of service charge, which was less than the estimated amount set out in the schedule attached to the earlier letter.
The landlord then brought a claim against the defendant tenant, which was the lessee of 15 of the flats, to recover service charges due in relation to those flats. The tenant applied for an order striking out the claim, contending that the notification fell foul of s.20B.
It was common ground that the relevant costs had been incurred more than 18 months before the December letter but that most of the costs had been incurred less than 18 months before the February letter.
Judgment
At first instance the judge held that the February letter, although not a valid demand for the purposes of section 20B(1), was a written notification for the purposes of section 20B(2), so that section 20B(1) did not apply.
The tenant appealed. Morgan J held that a written notification for the purposes of section 20B(2) of the 1985 Act must state a figure for the amount of costs which the landlord had incurred. In his view, such notification would be valid even if the costs which the landlord later put forward in a service charge demand were in a lesser amount.
Therefore, on the facts of the case, since the February letter did not purport to state what the actual costs were – it set out the only costs known at the time, ie estimated costs – and warned that they might be greater than the estimated costs which were referred to, it did not constitute a notification in writing for the purposes of section 20B(2).
Morgan J also held that, where the written notification served on a tenant under section 20B(2) of the 1985 Act specifies a figure for costs, and the landlord later serves a service charge demand which takes into account a figure for costs incurred which is greater than the one specified in the written notification, the notification will be effective in relation to the figure specified in it but not to any excess over that figure.
What about the landlord’s predicament if the costs incurred are unknown at the date of serving the s.20B(2) notification? This is what the court said:
“I have considered what a lessor should do if it knows that it has incurred costs but it is unable to state with precision what the amount of those costs was and it is concerned to serve a notice under section 20B(2) ... In my judgment, there is a clear practical course open to a lessor in such a case. It should specify a figure for costs which the lessor is content to have as a limit on the cost ultimately recoverable. In my judgment, a lessor 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, when all uncertainty has been removed.”
Effectively therefore it would appear that a landlord’s best course of action is to make an educated guess as to the final figure that s/he will wish to recover from the tenant.
Observations
Viewed through the prism of Jean-Paul v Southwark [2011] UKUT 178 and OM Property Management Ltd v Burr [2012] UKUT 2, it might be said that the above situation is unlikely to occur often: if, for example, a cost is not incurred until an invoice is rendered, the landlord should know at least the maximum figure claimed by a contractor. Nonetheless, it seems to me unhelpful to both landlord and tenant for a landlord to try to strike a moving target in circumstances where a s.20B(2) notice is required in the absence of fixed figures.