… a case about service charges, balancing payments, LVT procedure and precedent.
In Holding and Management (Solitaire) Ltd v Sherwin [2010] UKUT 412 (LC), the Upper Tribunal (Lands Chamber) had to grapple with s.20B, Landlord and Tenant Act 1985. This provides:
“Limitation of service charges: time limit on making demands.
(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.”
In effect, a landlord has 18 months from when he incurs a service chargeable expense to either (1) demand it (as a service charge) from the leaseholders; or (2) notify the leaseholders that they will, at a later date, be required to pay a service charge for the specified items.
In Gilje v Charlesgrove Investments Ltd [2003] EWHC 1284 (Ch); [2004] H.L.R. 1; [2004] 1 All ER 91, the High Court held that s.20B had no application where (a) sums were demanded on account and (b) actual expenditure did not exceed the on account demands. What – until now – hadn’t been considered, is how s.20B applied where actual expenditure exceeded the on account demands.
In the present case, the leaseholder had covenanted to pay service charges by two equal – on account – payments, and then an end of year balancing payment. Thus:
(a) for the year 2006/7, the leaseholder was invoiced £866.93 in advance and – on September 11, 2008 – a further £129.81 for the balancing charges;
(b) for the year 2007/8, she was invoiced £977.92 in advance and, on December 2, 2008, a further £354.63 for the balancing charges.
The LVT purported to apply s.20B to the entire service charge demands by (a) identifying the date when the balancing charges were demanded; (b) counting back 18 months from that date; and, (c) allowing a fraction (1/12 in 2007 and 5/6 in 2008) as costs which had been demanded within 18 months of being incurred.
The Upper Tribunal (Lands Chamber) allowed an appeal by the landlord. The submissions of the appellant are not summarised (beyond being described as “full and helpful”), but, presumably, they were similar to the conclusions reached by the Upper Tribunal:
(a) s.20B could apply to each demand for a “service charge” as defined in s.18, Landlord and Tenant Act 1985;
(b) there had been six demands in the present case, four “on account” and two “balancing”;
(c) following Gilje, the “on account” payments could not be affected by s.20B, as no costs had been “incurred” when those demands were made;
(d) it followed that s.20B could only affect the balancing charges;
(e) one had, therefore, to see when the sums comprising the balancing charges had been incurred and whether they had been demanded within 18 months of being so incurred;
(f) on the facts of the case, all the costs that comprised the balancing charges had been incurred less than 18 months before the demand was made. It followed that s.20B did not apply to limit any of the charges, whether “on account” or “balancing.”
Other points
When the landlord applied for permission to appeal, the LVT did not initially determine the application but indicated that it would be prepared to reconsider its decision if further submissions were made. The landlord declined to take this course, contenting that the LVT had no power to alter its decision. The LVT then refused permission to appeal, although this was subsequently granted by the Lands Tribunal (as it was then).
The President made clear that this was an improper course for the LVT to take. Firstly, the LVT does not currently have a power to reconsider its decisions. Secondly, it had no power to demand further submissions. It had to grant or refuse the application for permission to appeal. If it did not understand the application, then it should have refused it.
Secondly, the LVT had refused permission to appeal on the basis that it did not consider the decision of the High Court in Gilje to be binding on it. The Upper Tribunal expressed the (perhaps surprising) view that, strictly speaking, the High Court was not binding on the LVT as there was no hierarchical relationship between them. It was, however, a vanishingly rare case where it would be appropriate for an LVT to depart from a decision of the High Court. I’m not entirely sure that this is right. Surely the High Court is binding on all lower courts and tribunals, regardless of the fact that one cannot appeal an LVT to the High Court?
So, if I follow, s.20B could, in principle, apply to the additional amount where an estimated charge was served before or during relevant works, but a higher charge was then demanded over 18 months after the conclusion of the relevant works? Or would that fall under s.20B(2)?
On the LVT not being able to make up its own rules on appeal/re-hearing/further submissions, hurrah.
On the LVT not being bound by High Court decisions, I share your uncertainty – although I might be tempted to put it more strongly…
If the lease provides for “on account” payments followed by a balancing charge and:
(a) £1000 (say) is demanded on account; and
(b) £1,500 (say) is actually spent, then s.20B applies to the additional £500 that will have to be demanded in a balancing charge. To work out if s.20B applies, you:
(a) ascertain the date at which the on account sums were exhausted;
(b) ascertain which invoices to the landlord fall after that date; and
(c) see if the demand was made within 18 months of each invoice. Those that were incurred by the landlord more than 18 months earlier cannot be recovered (s.20B(1)) unless, within the same 18 month period, the landlord had served notice under s.20B(2).
I’m not quite sure what you mean by an estimated charge. If you’re thinking of, say, a s.20 consultation notice where there is a wild overspend, the s.20 notice adds nothing to s.20B (and, in most cases, won’t qualify as a notice under s.20B(2) – see Islington LBC v Abdel Makek (LC)).
The High Court authority must be wrong. Not least because the High Court certainly does have the power to judicially review the LVT and so is very much superior to it.
Also (pedantically) the LVT is really just a Rent Assessment Committee with another name (that is how it has been rather curiously constructed) and RAC’s certainly can have their decisions appealed to the High Court.
I confess that I’d be surprised if the appellants argued that the High Court is NOT binding on the LVT. The whole thrust of their case seems to be that it IS binding and, in particular, that Gilje was binding.
Although, on the JR point – since Nov 29, 2010, the UT(LC) has had judicial review functions (s.15, Tribunals, Courts and Enforcement Act), so it’s unlikely in practice now for the LVT to be the subject of a JR application to the High Ct – it’d be dealt with in the UT(LC). The UT(LC) is, however, capable of judicial review by the High Ct – see R (Cart) v Upper Tribunal.
All too true, but its not a complete transfer of the High Court’s supervisory powers (not least because the UT(LC) can be judicially reviewed). It would be a brave tribunal chair (in my view) that thumbed their nose at the High Court.
Your example in reply to NL is very helpful. But what if the estimates on which interim charges are based include provisions for transfers to Reserves for future expenditure. If in your example the £1000 demanded on account included £500 for building up Reserves then this will not have been incurred. This means that the overrun of £500 will be covered in the first £1000 spent. Surely not an intended result of the legislation and a way for unscrupulous landlords to protect themselves by building in excessive reserves.
But see s.19(2), LTA 1985 – can’t demand on account more than is reasonable. That, I suspect, is your answer.
So this seems perfectly clear if the final bill doed not exced the estimate u have no case under s.20B but what if the inital interim cahrge /estimate was unreasonably inflated by 40% by the landlord? Is there a case to be made to ask the LVT to agree a more reasonable interim estimate and then apply 20b to the reasonable estimate?
Yes, probably. In Solitaire v Sherwin, the Upper Tribunal thought you’d have to approach s.20B based on s.19 figures (if there had been a reasonableness decision).