Jean-Paul and another v LB Southwark [2011] UKUT 178 (LC) is, I suspect, going to cause some difficulties for LVTs (and lawyers) up and down the country. It concerns two points. When are costs “incurred” for the purposes of s.20B, Landlord and Tenant Act 1985 and how you notify tenants of expenditure for the purposes of s.20B(2).

In outline, s.20B creates a special limitation period for service charges; the landlord must either demand them from the leaseholders within 18 months of the costs being incurred or, alternatively, must notify the leaseholders within the same period that costs have been incurred and the leaseholders will be required to pay at a later date.

In Hyams and another v Wilfred East Housing Co-op LRX/102/2005, the Lands Tribunal had held that costs were “incurred” when they became payable by the landlord (which would usually be the date on which the invoices were presented). It did so, applying an earlier High Court case, Capital & Counties Freehold Equity Trust Ltd v BL [1987] 2 EGLR 49.

As regards s.20B(2), the Lands Tribunal and county court taken quite a restrictive approach, to the effect that any notification had to be of actual sums incurred (i.e. the personal liability of each leaseholder): see, generally, Abdel-Malek v LB Islington LRX/90/2006.

Back to the present case – In October 2004, Southwark had sent a demand for c.£44,000 of service charges, on account of the estimated costs of major works. Subsequent chasing demands were on the same basis (i.e. estimated charges). Although it isn’t entirely clear, it seems that Southwark paid their contractors in stage payments between 2005 and 2007.

The leaseholders argued that there had been a failure to comply with s.20B; the LVT rejected this argument – the landlord had been repeatedly demanding the service charges since 2004 and the fact that the figure demanded was an estimated sum was immaterial.

An appeal to the Upper Tribunal was dismissed:

(a) costs were incurred by the landlord for the purpose of s.20B when payment was made;

(b) the costs had thus been incurred in intervals from 2005 onwards;

(c) how those costs related to the actual demands made of the leaseholders would have to be worked out at a later date as it was not entirely clear how the payments interacted with the demands;

(d) however, the letters demanding payment were, in any event, sufficient to constitute notification under s.20B(2); by the time they were sent, the works in question had started and the costs had been incurred and the chasing letters were, therefore, notification under s.20B(2).

It’s not an easy decision to read, and I’m far from persuaded that the “incurred” point is right (a matter not helped by the fact that the President was not referred to the decision in Hyams or Capital & Counties) (which, in itself, would cause me to have some caution before relying on this decision). The potential for abuse by landlords is clear – they can, effectively, decide when the 18 month period starts to run. That seems very unlikely to be right.

It’s also quite hard to understand the s.20B(2) points without being able to see the (i) accounts; and (ii) letters. But, the idea that a demand for service charges based on an estimated demand can – when re demanded in chasing correspondence – become notification for the purposes of s.20B(2) is certainly an interesting one.