When seeking to recover the costs of works from the service charge fund, it is vital that landlords adhere to the strict provisions of the Landlord and Tenant Act 1985. If they do not, they can expect to incur serious expense.
Section 20B(1) Landlord & Tenant Act 1985 provides that the landlord cannot recover the costs of works if it fails to demand payment from its tenants within 18 months of incurring such costs. However, the harshness of this rule is diluted somewhat by section 20(B)(2): a landlord who has failed to demand payment may still be able to recover his costs if he has written to the lessees within the 18 month time frame confirming that costs have been incurred, and that a service charge contribution is required.
The Court’s Strict Approach
This is not, however, as straightforward as it sounds, and the courts have taken a strict approach in applying the law. In London Borough of Brent v Shulem B Association Ltd , for example, the landlord failed to demand payment for the costs of the major works within 18 months of incurring them. It therefore sought to rely upon a letter it had sent during the 18 month time limit, informing the lessees that costs had been incurred and that they would be required to contribute by way of service charge. The letter stated that the costs were yet to be calculated, and made reference instead to payment of a sum based on an estimate provided during the consultation period. The letter went on to say that a further invoice would be sent making any necessary adjustment once the true costs were known.
The court held that the landlord had failed to comply with the requirements of section 20(B)(2): any notification sent to the lessees must state an actual figure for the costs incurred, even if that figure is just an estimate and requires later adjustment. The landlord was therefore barred from recovering the £632,000.00 it had incurred in carrying out the major works.
Advice to landlords
If the accounts are ready and you are able to serve a demand within 18 months of incurring the costs, make sure you do so.
If nearly 18 months have passed since you incurred the costs, and the accounts are not yet finalised:-
- Serve notification under section 20(B)(2)
- Ensure that you state an actual figure even if it’s only an estimate (It is advisable to quote the highest possible figure)