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By S
27/01/2012

Section 20B again…

Om Property Management Ltd. v Burr [2012] UKUT 2 (LC) [not yet on bailii – we’ve got a transcript] was another case concerning the interpretation of s.20B, Landlord and Tenant Act 1985. Section 20B is of course the provision that renders service charges irrecoverable if the landlord does not demand payment, or at least warn the tenant that a payment will be required, within 18 months of the service charge costs being incurred. Here the Upper Tribunal was required to consider at what point in time service charge costs became incurred.

In November 2007, through no fault of its own, the Appellant management company found itself with a gas bill in the region of £100,000. This arose because the Appellant had mistakenly been paying EDF Energy for the supply of gas, when EDF were not responsible for the supply of gas to the block (this was unsurprising as the developer had told the Appellant EDF supplied the gas). Moreover, EDF had been under charging. Even when EDF paid Total Energy (i.e. the company who had been supplying the gas) there still remained a shortfall of £100,000, which the Appellant demanded from its leaseholders under the service charge five months later on 28 April 2008.

Mr Burr argued before the LVT that he was not liable to pay the service charge because the cost of the gas supply had been incurred at the time it was supplied and therefore, as the demand for payment had been made for than 18 months after the cost had been incurred, the service charge was not recoverable. The LVT agreed. The Appellant appealed.

The Upper Tribunal allowed the Appellant’s appeal. The authorities showed that costs become incurred when they are either expended or become payable (see Brent LBC  v Shulem B Association Ltd [2011] EWHC 1663 (Ch) / Capital & Counties Freehold Equity Trust Ltd v BL plc [1987] 2 EGLR 49 / Hyams v Wilfred East Housing Co-Operative [2007] 1 E.G.L.R. 89); they did not become incurred merely because a liability to pay at a future date had arisen. Under s.20B costs would therefore be incurred on the presentation of an invoice or on payment. In this case the invoice had been demanded in November 2007 and the demand for payment had been made in April 2008. It followed that the service charges were recoverable.

Perhaps foreseeing that this definition could lead to more confusion in other cases (e.g. the invoice is served on the landlord 20 months before the service charge demand, but the cost is expended 14 months before the service charge demand), the Upper Tribunal indicated that this point will be a question of fact for LVTs to decide in each case on their own facts. The Upper Tribunal made clear, however, that where there was a long delay in the payment of the invoice and it appeared the landlord was prevaricating  to postpone the start of the 18 month period, other than in circumstances where there was a genuine dispute or the landlord had entered into negotiations to reduce the payment, the relevant date would be from the date of the invoice .

Comment

As a lawyer whenever I see a phrase in a judgment which says something like “this question is best left to the [insert lower court] to decide on a case by case basis” I always rub my hands with glee as this breeds uncertainty and therefore a need for lawyers.

However, as a common law lawyer I must accept that certainty is no bad thing really and I’m not sure the Upper Tribunal needed to leave the question open for LVTs to decide in this one. In Capital Counties, all the High Court said is that incurred is synonymous with both “becomes payable” and “expended” and it did not mean the liability had arisen. It didn’t say it can mean one or the other depending on the circumstances; it means both. Thus, surely if it means both, when an invoice has been received the cost is incurred and that should be the relevant date for s.20B.

S is a barrister, based in London, who practices predominantly in housing and local government law.

8 Comments

  1. Mick Beirne

    I’m perplexed by this decision.

    Section 21 of the 1985 Act still imposes a criminal liability on landlords, when in receipt of a request, to provide a summary of service charge costs incurred in the relevant 12 month period. I assume that “costs incurred” in section 21 means precisely the same thing as it means in the neighbouring section. There is nothing that I have seen in the Act that indicates otherwise.

    Section 21(5)(a) requires the summary to set out those costs incurred in the relevant year that were not, by the end of that year, subject to a demand for payment by the landlord within that period. That seems to me to mean that for section 21, a cost is incurred when a liability to pay at a future date had arisen, i.e before a demand and before payment.

    If that isn’t the case, then what costs does section 21(5)(a) cover? If it is, how can the definition of “costs incurred” in section 20B be different from setion 21?

    Reply
  2. J

    I’m not sure that s.21 defines when costs are incurred though, it just sets out what sort of information must be included in the summary

    Reply
    • Mick Beirne

      Yes. But clearly s.21(5)(a) sets out that a cost is incurred before a demand for payment is received by the landlord – such a possibility is excluded by Om Property Management Ltd. v Burr [2012].

      Reply
    • J

      The tenant has permission to appeal to the CA

      Reply
  3. Sandeep goenka

    Agree with mick. Also the theory that costs and liability arise at different points in time doesnt fit with economic and accounting concepts.

    Reply
  4. S

    I hear rumours that judgment in the Court of Appeal will be handed down on Friday.

    Reply
    • chief

      It’s on the cause list for a 10am hand down.

      Reply

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