There are a raft of contractual and statutory restrictions on the recovery of service charges. In certain circumstances, failing to adhere to those restrictions is fatal to the recovery of service charges.
The 18 month rule
Section 20B of the Landlord and Tenant Act 1985 is one of the statutory restrictions on the recovery of service charges.
Section 20B(1) prevents a landlord from making a demand for service charges more than 18 months after they’ve been incurred.
Section 20B(2) “softens” this rule by enabling a landlord to preserve its position by telling the lessee in writing that costs have been incurred and that they will be required to contribute to those costs by means of payment of a service charge.
In Cookson v Assethold Limited  UKUT 0115 (LC), the Upper Tribunal considered section 20B and assessed whether the documentation served was sufficient to satisfy either limb of section 20B.
The lease in Cookson obliges each lessee to pay a service charge. This is payable on account at the start of each year, and at year end a notice certified by an accountant is to be provided.
The application to the FTT concerned the service charge year 2015/16, together with part of the following year.
The FTT allowed some of the charges, reduced some, and disallowed others on the basis they hadn’t been reasonably incurred.
The lessee sought permission to appeal on the section 20B point, arguing that the 18 month rule applied to the service charges. If correct (and the 18 month rule applied) then nothing would be payable for the period in question because the service charges would be stale and unrecoverable.
It seems that the RTM company took over management in October 2016. The lessee argued that she hadn’t received a demand for the period March to October 2016; demands had been made of the RTM company, not of the lessees. A schedule of service charges headed “expenses since 24 March 2016” had been included in the FTT bundle. The bundle also contained a service charge demand dated 4 March 2016 addressed to the lessee. However, the amounts set out in the demand where different from those set out on the schedule.
Nonetheless, the FTT found that, in accordance with the requirements of section 20B, sufficient notice of estimated costs for service charges had been provided to the lessees.
Decision on appeal
The difficulty with the FTT’s decision, as identified by the Upper Tribunal, was that it was not possible to identify which document the FTT regarded as the notice complying with either section 20B(1) or with section 20B(2).
The Tribunal identified the two possible candidates for the “sufficient notice”.
The first was the schedule. But this was not dated, it’s addressed to the RTM company, it doesn’t comply with the certification requirements of the lease and it doesn’t set out the rights and obligations (as required by section 21B of the Landlord and Tenant Act 1985).
The Upper Tribunal could not regard this as complying with section 20B.
The second candidate was the 2017 demand. This was a demand dated 27 February 2017, setting out the amount outstanding for the previous year. The problem with this demand is that it did not itemise the charges, doesn’t appear to have been certified and doesn’t contain the rights and obligations.
Accordingly, the Upper Tribunal concluded that this was not a demand for service charges.
The Upper Tribunal was invited to treat the March 2016 demand as notice given pursuant to section 20B(2).
This demand set out charges for 2015/16 and listed over the page the estimated charges for 2016/17 for the building. It set out a total for the building, together with the amount attributable to the lessee. It stated that it was certified by the landlord’s managing agent, and also set out the rights and obligations.
However, the Upper Tribunal held that this was not a notice that satisfied section 20B(2) because it didn’t inform the lessee that charges had been incurred.
The outcome of the appeal, therefore, was that nothing was owed by the lessee by way of service charges for the period 25 March to 9 October 2016.
This case serves as an important reminder to ensure service charges are demanded in accordance with section 20B(1), and, if a demand cannot be served within 18 months of the costs being incurred, that a notice is served which does the work required of it by section 20B(2).
Any failure to depart from these requirements will be fatal to the recovery of those charges.