Section 20B - What, why and How? Mike Edmunds Camden Council

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1 Section 20B - What, why and How? Mike Edmunds Camden Council

2 Section 20B of the Landlord and Tenant Act 1985 What is it? 20B - Limitation of service charges: time limit on making demands. Commonly called the 18 month rule Landlords have problems interpreting the degree of formality needed. No prescribed format for notices.

3 Time limit on making demands, consists of two subsections :- Subsection (1)lays out the basic 18 month rule (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

4 Notification of costs:- Subsection(2) details the requirement for a notice/notification. (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".

5 Why do you have to comply? Financial loss:- Common problem areas Major works billed separately Fee costs forgotten End of year adjustments. Service charges billed wrongly outside the lease terms and costs are more than 18 months old.

6 How do you comply??

7 Westminster City Council v BJ Hammond and others [1995] NO/CL5/21431: Basic Principals The court held that for the purposes of s20b (1) the relevant costs are incurred when the obligation to make each payment comes into existence. The court also held that in order to constitute proper notice under s20b (2) the notice had to give similar information to an actual demand - i.e.: The fact that relevant costs had been incurred (in this case the amount of the interim payments which had become payable up to that date); the notice would need to detail the dates between which the costs were uncured. The nature of the works and reason for the expenditure; The amount of the costs incurred and the proportion attributable to the individual leasehold and; That such amount would be demanded at some stage in the future.

8 Lessons learnt:- How to comply In summary this case set out what the judge thought a notice should contain & identified :- The need for a formal notice The basic requirement of what should be in notice. You can issue more than one notice for a major works scheme. That fee costs would also need to be identified separately Cost are incurred in line with the building contract. That simply mentioning the fact that bills would be issued in the future was not compliant. Nb see how this was narrowed down in: - Brent London Borough Council v Shulem B. Nb serve on alternate address where notified.

9 Gilje v Charlegrove Securities Ltd & (2003) EWHC 1284 (Ch); (2004) 1 All ER 91 On Account Payments Accounts showed that the amounts expended and claimed by way of service charge were less than the interim quarterly service charge demands for those years. The claimants argued that by virtue of s.20b Landlord & Tenant Act 1985, the defendants were not entitled to recover by way of service charge any expenditure in those accounts as the expenditure had been incurred more than 18 months previously. The court concluded that s.20b LTA 1985 had no application where (a) payments on account are made to the lessor in respect of service charges; (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.

10 Section 20B: LandsTribunal LRX/90/2006 London Borough of Islington v Abdel-Malek 16-July- 2007: 20B Notice must contain costs incurred Council sent its leaseholders a letter within the 18 month period enclosing an estimated invoice for the works Advising That the works continued and the final account would be produced once after the defects liability period. The invoice attached to the letter was for the same sum as had been estimated for the whole of the works in the Section 20 notice. The tenant argued that only part of this sum had so far been incurred and had no way of knowing what part. The tenant said as no figure stating the amount actually spent to date was included in the notice, It was invalid. The Lands Tribunal Agreed. Secondly, In order to comply with 20B the landlord must keep a running tally of the costs spent so that they can notify the tenant of the exact amount incurred within the time limit set down by the section.

11 Paddington Walk Management Ltd v Governors of Peabody Trust [2010] Errors with Accounts, End of year accounts didn't contain the correct adjustments. The claimant sought to argue that s.20b, 1985 Act didn't prevent a subsequent correction of an error. The 2005 demand was erroneous and had later been corrected. The judge rejected that argument; the purpose of s.20b was to finalise service charge contributions; errors had to be corrected within the 18 month period. The demand correcting the error in August 2007 was outside of the 18 month period. Correspondence from 2006, when the error was discovered, was not sufficient to constitute notification within the 18 month period because it did not actually refer to any costs that had been incurred, but merely raised the probability that the 2005 demands were erroneous. Note : it is not possible to re-issue demands outside the 18 month period unless a 20B notice has been issued

12 Jean Paul V Southwark What does a notice look like? Appeal to Upper Tribunal (Lands Chamber) Case Number: LRXl133/2009, 09/May/2011, George Bartlett QC, LVT had concluded that letters sent in 2005 and 2006 chasing payment for the major works satisfied section 20B(2). It is against this conclusion that the appeal was made. Appeal relied upon Gilje v Charlgrove Securities Ltd (2004)11 All ER 91: Case stated :- "... 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."

13 Jean Paul V Southwark Facts of case:- Works started on 8 November 2004, and completion was on 27 August Case relied on arrears letters sent. Primary argument was that by the time the letters of 18 October 2005 and 17 February 2006 were sent the council had incurred the totality of the costs.

14 George Bartlett s Conclusion My conclusion, therefore, is that the LVT was correct to conclude that the letters constituted notifications for the purposes of section 20B(2).. They were fully consulted in advance about the proposed contract and its cost. were informed what their liability would be and received a demand for the estimated contribution in advance of the commencement of the works. The works were carried out. The tenants expressed their total satisfaction with them, and the council continued to press for payment. The LVT determined on the tenants' application that the final amount demanded, which was less than the estimated amount, was reasonable. They have paid nothing and seek to avoid paying anything. I am satisfied that section 20B does not enable them to ride free.

15 Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch) CHANCERY DIVISION MR JUSTICE MORGAN Appeal against the decision of Judge Cowell in the Central London County Court. Raises issues about the degree of formality which is required as to a lessor's demand. Mr Morgan stated that decisions in the County Court and in various tribunals have not been consistent. Old lease required billing on actual costs only. The Lessor Brent claimed to have issued two demands, the case is very much about how these demands complied or not with the legislation. The Lessee claimed the first was not a valid demand.

16 Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch) Date costs incurred, not discussed in detail, but Judge stated:- In my judgment, it is not appropriate for me to discuss, or express any views, on the question as to when relevant costs were incurred by the lessor. The principal reason for this conclusion is that the answer to the question is likely to turn upon, or be affected by, the terms of the building contract The case looks in great detail at the requirements of a demand for payment and what needs to be contained in a valid notification :-

17 Brent London Borough Council v Shulem B Judges comments on costs included 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 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. It will be open to the lessor to explain any other circumstances in the letter

18 Brent London Borough Council v Shulem B Judges comments: future contribution The second matter which must be stated in a notification under section 20B(2) is that the tenant would subsequently be required under the terms of his lease to contribute to the costs by the payment of a service charge this does not oblige the lessor to state the resulting amount of the service charge It would no doubt be of more use to a lessee to be told what sum they will be expected to pay by way of service charge but, in my judgment, the words of section 20B(2) do not clearly so require.

19 OM Property Management Limited v Thomas Burr [2013] EWCA Civ May 2013 When are costs incurred? Development with a swimming pool. Gas required for the pool Assumed EDF energy supplying the gas, in fact discovered 6 years later that Total were supplying the gas EDF refunded money, Total demanded payment of 135, Total sent the agent invoices and more than 18 months later service charges were demanded The leaseholder disputed his liability to pay under Section 20B of the Landlord and Tenant Act 1985

20 OM Property Management Limited v Thomas Burr Cases presented:- The leaseholder argued costs were incurred when gas was supplied Argued the aim of Section 20B was to protect leaseholders from old service charges Landlord argued costs were incurred when the bill was paid or at least on receipt of an invoice

21 OM Property Management Limited v Thomas Burr The Court of Appeal s decision Liability to pay service charges must be distinguished from the date costs are incurred Liability to pay arises when the works or services are provided or even before then depending on the terms of the lease E.g. liability to pay arose when gas supplied but costs were not incurred until the agent had been billed A liability to pay service charges does not become a cost incurred until it is made concrete Depending on the facts costs are incurred when the supplier serves an invoice or when the landlord/manager makes payment Costs may not be incurred on payment where a delay in paying the invoice is some evasion by the landlord Costs may be date of payment if there is a legitimate dispute over the invoice

22 In Ground Rents (Regisport) Ltd v Dowlen [2014] UKUT 144 (LC), appeal to Upper Tribunal : Invoice errors Flats developed by Countryside Properties (UK) Ltd, who were also the original landlords under all the long leases. Agreement with Thames Water to supply water, to the blocks in Agreement wasn t assigned to the appellants when the landlord changed (August 2006). Bills for one block made it to the appellant, but the bills for the other two went to CPL. successive managing agents failed to appreciate that each of the three blocks had its own meter to record the consumption of water in that block. On discovering the issues in 2010 Thames Water then demanded outstanding monies c. 80,000. The appellant started to put these monies through the service charge.

23 In Ground Rents (Regisport) Ltd v Dowlen [2014] UKUT 144 (LC), appeal to the Upper Tribunal (Lands Chamber) leaseholders applied to the LVT to determine whether the historic water charges were recoverable. The appellant contended that the landlord for these purposes was the landlord for the time being, such that the demands being sent to the previous landlord was of no use and that time had only started to run with the invoices in 2010 when the problem was rectified. The Upper Tribunal agreed The facts of Burr have some similarities to this case Lessons learnt The landlord was the landlord for the time being and not any former landlord, such that s.20b presented no impediment to recovery.

24 How safe are your processes? Do monitor expenditure on major works projects? Have you got a section 20B procedure? Are you billing service charges in line with the lease requirements Carry out a health check Establish a template

25 Mike Edmunds Head of Leaseholders Services Camden Council