The 18 Month Rule and Billing Louise Turff Service Charge Construction Manager And Jennifer Dawn Capital Works (Actuals) Manager London Borough of Southwark
S20B The Law Section 20B of the Landlord & Tenant Act 1985 (as amended): (1) if any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred. (2) subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had 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.
What doesn t count as a valid S20B notice? Islington LON/00AU/LSC/2005/0299 The Section 20B notice did not state how much had been incurred by the respondents at the relevant date but merely restated the figures given in the original Section 20 notice. Applicant stated that for the notice to be valid it should have shown the costs incurred at the date of the 20B notice. Respondents submitted that the purpose of a Section 20B notice is to warn any tenant of the total costs recoverable and so that they are sufficiently warned of those costs subsequent to the original Section 20 notice. The tribunal found that it was invalid.
What does a S20B notice look like? Tower Hamlets LON/00BG/LSC/2005/0351 A Section 20B Notice does not have to be a formal document. The Act merely provides that the tenant be "notified in writing". o Jean Paul V Southwark [2011] UKUT 178 (LC) The final account amounts did not exceed the estimated invoice and many chasers for payment of the estimated amount were sent which the panel stated was in compliance with S20B.
Why does S20B exist, what is its purpose? Gilje v Charlegrove Securities [2004] Gilje v Charlgrove Securities [2004] 1All ER 91 Also see Barnet LON/00AC/LSC/2009/0303 & 0787 Finally, I agree with [counsel] that, so far as discernible, the policy behind section 20B of the Act is that the tenant should not be faced with a bill for expenditure, of which he or she was not sufficiently warned to set aside provision. It is not directed at preventing the lessor from recovering any expenditure on matters, and to the extent, of which there was adequate prior notice.
When is S20B not applicable? Gilje v Charlegrove Securities [2004] Section 20B has no application where (a) payments on account are made to the lessor in respect of service charges, and (b) the actual expenditure of the lessor does not exceed the payments on account, and (c) no request by the lessor for any further payment by the tenant needs to be or is in fact made.
When is a cost incurred? Om Property Man V. Burr [2012] UKUT 2 (LC) The 18 months starts when the invoice is demanded/due for payment In my judgement the true answer is that as a matter of the interpretation of section 20B costs are incurred on the presentation of an invoice or on payment; but whether a particular cost is incurred on the presentation of an invoice or on payment may depend upon the facts of the particular case. As per Gilje v Charlegrove Securities [2004], the above is only relevant when the service charges on account (estimate) are exceeded.
Can I cheat the system? Om Property Man V. Burr [2012] UKUT 2 (LC) it might be relevant to decide whether the payment was delayed because there was a justified dispute over the amount of the invoice or whether the delay was a mere evasion or device of some sort. In the latter case the tribunal might be very reluctant to allow deliberate prevarication to postpone the running of the time limit imposed by section 20B. That is the sort of factual matter that the LVT is well placed to decide. The Upper Tribunal is warning that if a landlord delays the payment of an invoice such that it is deemed to be prevaricating to postpone the start of the 18 month period, other than where there is a genuine dispute or negotiations regarding the invoice are ongoing, the relevant date will be the date of the invoice.
But we don t know how much!!!! Brent Council v. Shulem B Association Ltd [2011] EWHC 1663 (CH) The judge 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) to stop time running against it. It should specify a figure for costs which the lessor is content to have as a limit on the cost ultimately recoverable. 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.
What if we got it wrong? Brent Council v. Shulem B Association Ltd [2011] EWHC 1663 (CH) The Judge made it clear that if the landlord puts forward a figure for actual costs in the S20B notice and the actual costs transpire to be less than that specified in the S20B notice, the landlord has satisfied the provisions. AND REMEMBER!!!!! It is not necessary for the notice to tell the lessee what proportion of the cost will be passed on to the lessee nor what the resulting service charge demand will be.
Billing LRX/6/2012 London Borough of Southwark v Dirk Andrea Woelke Invoices served for major works were not notifications in accordance with the lease Lease requires notifications of estimated and actual expenditure on an annual basis Leaseholder not liable for payment until correct notifications served
Billing Time is not of the essence notifications can be re-served if inaccurate. Estimates are required Estimated notifications can be revised in year Revised notifications do not need to repeat all detail If revised notification for actual expenditure then it must include the total notified earlier with any account adjustments, and provide a date of when the information was previously served Alternative arrangements can be made with the agreement of the leaseholder
Billing Southwark Lease Before the commencement of each year (except the year in which this lease is granted) the Landlord shall make a reasonable estimate of the amount which will be payable by the Tenant by way of Service Charge (as hereinafter defined) in that year and shall notify the Tenant of that estimate (2) The Tenant shall pay to the Landlord in advance on account of Service Charge the amount of such estimate by equal payments on 1st April 1st July 1st October and 1st January in each year (hereinafter referred to as `the payment days')
Billing As soon as practicable after the end of each year the Landlord shall ascertain the Service Charge payable for that year and shall notify the Tenant of the amount thereof (2) Such notice shall contain or be accompanied by a summary of the costs incurred by the Landlord of the kinds referred to in paragraph 7 of this Schedule and state the balance (if any) due under paragraph 5 of this Schedule
Billing Notification requires: The amount of service charge payable for the relevant year A summary of costs incurred (either contained within or accompanying the notification) This will be contained within the leaflet or letters... In the summary of costs an explanation of how the costs have been apportioned (either contained within or accompanying the notification) The balance due In the summary of costs an explanation of how the costs have been apportioned The date and relevant financial year should also be included
Billing Revised billing process Notify annually of both capital and revenue expenditure before the start of the financial year If capital expenditure unknown at the time of invoicing then revised notifications to be sent when section 20 carried out Notifications show anticipated expenditure per financial year for major works with equivalent service charge Single major works invoice to allow for payment options
Billing Leaseholders offered the option of paying in accordance with the lease or accepting more generous payment options and agreeing to notification outside of the lease Actual notifications dealt with on an exceptions basis Actual notifications based on costs incurred within each financial year based on payment certificates Single account adjustment Section 20b notices served annually in order to protect the service charge
Billing Southwark lease requires notification to trigger payment not invoice Invoicing takes place for administrative purposes If the notification is correct the invoice is irrelevant to the lease The vast majority of leaseholders would prefer to be billed outside of the lease if that allows for more flexible payment options than required by the lease Subletting leaseholders may prefer to pay in accordance with the lease as they are not eligible for all of the alternative payment options Woelke decision must be viewed in relation to the individual lease