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Service charge demands: a reminder of key principles

In our insight last year, which can be found here, we summarised the decision of No. 1 West India Quay (Residential) Limited v. East Tower Apartments Limited [2021] EWCA Civ 1119.

The decision was appealed to the Court of Appeal, which recently upheld the Upper Tribunal’s decision, and confirmed that a service charge demand in respect of long leasehold residential premises must be a contractually valid demand for the purposes of Section 20B of the Landlord and Tenant Act 1985 (“the 1985 Act”).

The Facts

The dispute concerned a mixed use building comprising a hotel and residential flats.  East Tower held leases of 42 residential flats.  The electricity charging structure in the leases was unusual and extremely complex, such that it had been the subject of a long-running dispute between the parties.  In an earlier Upper Tribunal decision, it had been determined that electricity charges were recoverable as a service charge.  The consequence of that decision was that electricity charges had not been correctly demanded in accordance with the terms of the lease and the argument was raised that the sums were irrecoverable as they had not been demanded within 18 months of being incurred.

Background

Section 20B(1) of the 1985 Act imposes a limitation period for the recovery of service charges from long leaseholders of residential premises and costs are not recoverable if they were incurred more than 18 months before they were demanded.  However, that restriction does not apply if the tenant has been informed in writing under Section 20B(2) of the 1985 Act within 18 months of the costs being incurred, that those costs have been incurred and are recoverable from the tenant

The Court of Appeal’s Decision

The Court of Appeal held that it was bound by an earlier decision in Skelton v. DBS Homes (Kings Hill) Limited [2017] EWCA Civ 1139 and it was necessary for a landlord to issue a contractually valid demand in accordance with the terms of the lease.  In this case, the landlord was prevented from recovering the electricity charges because they had not been demanded within 18 months of falling due and unfortunately, no protective Section 20B(2) Notice had been served. 

Takeaways

This decision confirms the position as it was understood to be and does not create any change in practice.  Landlords and managing agents should continue to ensure that they follow the terms of the lease carefully in respect of demands for service charge and serve a contractually valid service charge demand within 18 months’ of sums being incurred.  If they are prevented from doing so for any reason, they should serve a Notice under Section 20B(2) of the 1985 Act to protect their position, otherwise the 18 month limitation period may affect recovery.


This article was written by Laura Bushaway, for more information please contact them or your usual Charles Russell Speechlys contact. 

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