Social landlords should beware the 18-month limit to recover service charges, says Emma Duke
A decision by the High Court on 29 June has confirmed the risks of non-recovery of service charges under the ‘18-month rule’.
Section 20B of the Landlord and Tenant Act 1985 imposes an 18-month time limit for landlords to serve a valid demand for service charges, running from the date costs are incurred. If demands are served after 18 months, the costs cannot be recovered unless the landlord has given the tenant notice under section 20B(2).
The judge in Brent v Shulem confirmed that for a notification to be valid under section 20B(2), a landlord should:
- specify a figure for costs incurred; and
- state that the leaseholder will subsequently be required to contribute towards the costs by payment of service charge under the terms of the lease.
If the landlord does not know the actual costs (which they usually won’t) they should take a cautious approach and include the maximum amount they think will be potentially recoverable. Reference to ‘predicted future costs’ would not be sufficient. If the actual costs turn out to be more the difference will not be recoverable.
Although the courts have not reviewed this issue for some time, this latest case reinforces the position that landlords must enter a definite (or at least a maximum) sum on a section 20B notification, and the need to comply with contractual provisions in leases/tenancies for service charge demands. This can be a problem for landlords on major works projects in particular, so timescales need to be monitored carefully.
Emma Duke is an associate at Anthony Collins Solicitors