Back-Dated Overcharges Liability

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    Back-Dated Overcharges Liability

    Our current Building Freeholder and Managing Agent took over from previous Freeholder and Managing Agent on 1st April 2019.

    On 25th September 2020, Managing Agent sent to building leaseholders a letter.
    Letter contained “summary of total service charge costs incurred for the year ended 31 March 2020” indicating that “whilst this notice does not represent a demand for payment, such a demand may be issued upon completion of the annual certification process in accordance with the terms of your Lease
    Letter contains Table with “Summary of costs for the accounting period 01 April 2019 to 31 March 2020”. Summary Table showed Budget £115K and Actual Costs £138K.
    Below the Summary Cost Table following statement:
    Pursuant to Section 20(b) of the Landlord and Tenant Act 1985 (As Amended) Notice is hereby given that the above costs have been incurred in the period from 1st April 2019 to 31st March 2020 and that the lessors will be required to contribute to them by payment of an additional service charge to the extent that they exceed amounts already paid on account.
    The above costs are based on uncertified accounts and may be subject to amendment and adjustment following completion and certification of the annual accounts.

    End of last month (23rd August 2021) we received a letter from the Managing Agent indicating “financial statement for year ending 31 December 2020 have now been independently certified” and was letting leaseholders know that the service charge year for 2020 resulted in a deficit of over £100K (Budget £115K and Actual Costs £215K) (meaning £1200 per leaseholder).
    Incurred costs Breakdown contains expensed such as:
    • Electricity Historic Bills (from Nov 2016 to April 2019) over £84K
    • Electricity Bills (April 2019 to March 2020) over £36K

    It is my understanding that Landlord and Tenant Act 1985 Act 20B(1)(2) defines time limit of 18 months from the relevant costs were incurred to when the demand for payment is served on the tenant.

    My questions are:
    1 - Has Management Agent honored Act 20B(1)(2) by sending September 2020 letter indicating estimated cost (incurred between April 2019 and March 2020) followed by August 2021 letter indicating Higher Actual Cost Leaseholders are liable?
    2 - Can Managing Agent charge us for Electricity Historic Bills (Nov 2016-April 2019) that haven’t been previously communicated to leaseholders?

    The letter you received in September 2020 may have covered the freeholder/managing agent for any costs incurred during the 18 months prior to the letter, but I believe that they have to state the actual costs and will not be able to require payment of anything above the total they quoted in the letter.

    Any costs for periods prior to this (e.g. the electricity costs for 2016 - March 2019) will almost certainly not be recoverable. The only potential exception to this is if they can show that, for some reason, the freeholder was not invoiced for these costs until a date within 18 months of the leaseholders being notified.


      It is not entirely clear what the managing agent is saying. Is it saying that the electricity charges for 2016 to 2019 were not received at the time and the leaseholders were not charged anything during that period or is it saying that estimated charges were made during that period and the actual charge exceeded the estimate?

      It ought to have been aware of an electricity supply, there ought to be a meter, it ought to have been able to calculate approximately the sum payable, supply meter readings and obtain actual bills. So, it has a lot of explaining to do.

      The position with the leaseholders is not entirely clear either. They are presumably aware of an electricity supply, they are presumably using it and so they should be aware that there will be a charge.

      It is by no means certain that a Tribunal would find the charge unreasonable or disallow the charge or a part of it.


        Thanks Macromia and eagle2 for the prompt replies,

        In relation to Electricity Historic Bills (from Nov 2016 to April 2019) query.

        Each Financial Year Leaseholders have been invoiced with Electricity Costs (Reflected in each Year Service Charge Accounts).
        Managing Agent August 2021 letter explanation for Electricity overcharges has been:
        Energy Consultant identified and rectified a change of name discrepancy on the account, transferring the ownership from previous Freeholder into new Freeholder.
        Unfortunately, it then became clear that not all electricity costs had been included in the previous year’s accounts. A significant amount of invoices were forwarded to us as outstanding for payment in relation to the suppliers at [the development]”

        In relation to Management Agent honoring Act 20B(1)(2) query.

        Leaseholders have received Two Different sets of Costs for the same period (April 2019 to March 2020) from the Managing Agent (September 2020 letter ad August 2021 letter)
        According to Act 20B, Can demand of payment be based on August 2021 letter Stated Costs (£215K) or should it be based in September 2020 “Section 20(b) Notice” letter stated costs (£138K)?


          The freeholder's position appears to be that it has recently received additional electricity charges and they were either received within the last 18 months or notice was given to leaseholders.

          I suggest that you ask to inspect some of the invoices and try to understand the position better. Do these additional charges relate to another electricity supply?, is it at the property?, is there another meter? why was the previous freeholder unaware of the charges? Why are the charges higher than the usual cost for the communal areas. Whilst looking at the invoices, I suggest that you look for any evidence of a long term agreement with the supplier which should have been disclosed to leaseholders.

          Who is the energy consultant and is he/she connected in any way with either the previous or the current freeholder or their agents? A consultant would not normally be involved in the billing, that should be the responsibility of the supplier.

          Your position is that there is possibly a breach of the 18 month rule, there may be a long term agreement which has not been disclosed and the charge may be unreasonable but you need some evidence to support those arguments.


            Any charges that the freeholder/managing agent for the block was made aware of more than 18 months before they send notification of the amount to leaseholders will not be payable if the matter is taken to a tribunal (or one of the lower courts).

            The maximum you can therefore be expected to pay for costs in the 18 months prior to the notification you received in September 2020 is therefore the amount stated in the notification letter.

            The above applies if all costs were innvoicedmore than 18 months before you receive a demand for paymentpayment invoice for the extra £85,000 (or whatever the amount is) for electricity was sent to the freeholders/managing agents until months/years after the period the charges were for they can pass those costs on to leaseholders at any time within 18 months of receiving the invoice.

            If the freeholder can produce suitable dated invoices, you may need to look more closely at the charges (looking at the sort of details eagle2 mentions) if you think that you shouldn't have to pay these costs.


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