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.