… 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?