Section 20b - Limitation of Service Charge : Time Limit on making demands

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    Section 20b - Limitation of Service Charge : Time Limit on making demands

    The Act states:

    "Limitation of service charges: time limit on making demands.

    (1)If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2) ), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred.

    (2)Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge."

    Point for discussion is:

    Does an application for an interim payment (based on a budget) qualify as a demand for payment within the meaning of the clause?

    For example, an interim (on account) demand of £x was made for service charge expenditure on service charge item (a) on 01 Jan 2000, and costs of £y were incurred for service charge item (a) on 01 Feb 2000 but the final service charge statement including final costs for service charge item (a) weren't sent to the leaseholder until 02 Aug 2001 (i.e. 1 day after the 18months) is the cost of £y for service charge item (a):

    a: Not payable as a service charge under 20b
    b: Payable as the cost (albeit a budget estimate cost) as was notified on 01 Jan 2000
    c: Payable but limited to £x in the case of £y (actual) being greater than £x (budget)

    This is not an actual case, but hopefully a helpful discussion will follow.

    MCPH

    #2
    It will be a firmly short one.

    1: The interim demand is still due ( subject to challenge for reasonableness etc and compliance with the lease

    2: Any balancing charge is time limited to 18 months unless previously notified that the cost incurred, not estimated, & will be demanded.

    ie C.

    The interim is the estimate, section 20 b applies to incurred costs( re your accounts actual costs or relevant liabilities).

    But bear in mind what the lease requires on reconciling x and y; that cannot override section 20b but may be a pitfall.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

    Comment


      #3
      London Borough of Brent v. Shulem B Association Limited

      The landlord, Brent Council owns five blocks of flats in Willesden, north-west London. Shulem is a tenant under long leases for 15 flats within the blocks.

      The leases require the tenants to pay a service charge to cover the usual repairing covenants.

      In 2003, the landlord decided to carry out major works. Estimates were obtained and the Section 20 consultation process was undergone. In March 2004 tenants were informed of the proposed works and given a breakdown of likely costs – circa £19,000 per flat.

      Works began in 2004 and were completed by April 2005. The cost of the works was £640,000 but the Landlord did not serve a formal demand on the lessees based on the actual cost of the works until December 2006.

      On 23rd February 2006 the landlord invoiced tenants for their proportions of the costs based on estimates as the actual costs were yet to be calculated.

      Shulem contended that it had no liability to contribute to the cost of the works as the landlord had failed to send a demand for service charges or a Section 20B Notice within 18 months of the costs being incurred.

      The landlord sought to rely on the letter dated 23 February 2006 sent to the lessees enclosing an invoice specifying the estimated total cost of the works and tenant’s individual contribution as either a service charge demand under the terms of the Lease or a valid Section 20B Notice.

      The Judge allowed Shulem’s appeal on the basis that 23rd February 2006 letter was not a valid demand under the Lease nor did the letter amount to written notification under Section 20B as this required the landlord to state the actual costs incurred whereas the letter made it clear that the invoice related to estimated costs.

      The Judge held that Section 20B requires the landlord to state the costs it has actually incurred.

      Health Warning: Surely this is a practical difficulty as Section 20B frequently arises where the landlord does not currently know the actual costs incurred, for example, where the annual service charge accounts have not yet been certified by an accountant?

      The Judge did, however, state that landlords should err on the side of caution and include a figure in the Section 20B Notice which it feels will suffice to enable it to recover its actual costs once the precise costs are known! The Judge made it clear that if the landlord puts forward a figure for actual costs in the Section 20B Notice and the actual costs turn out to be less than that specified in the Section 20B Notice, the landlord has satisfied the provisions of Section 20B.

      Question is, is this really practical??
      Source http://blog.brethertons.co.uk/2011/0...ion-20b-sussed

      I would recommend joining the PM alliance it's free giving updates and access to the webinars.


      The last paragraph is very important bearing in mind my last post about "relevant liaiblites"; section 20b, the definition of incurred costs and leases may have to reconciled.

      If in doubt esp with major costs, chuck it at Counsel !
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

      Comment


        #4
        Thanks LHA and I am already signed up to the PM Alliance and find it useful (although my experience of the firm that operates it is not entirely favourable).

        I have been reading around this subject and many of the LVT decisions and have to admit that it's (as usual) open to varying interpretations.

        Thanks for your point of view as ever.

        MCPH

        Comment


          #5
          But there have been one or two Upper Tribunal decisions on this subject that should be used as prescedents, Ive given up using LVT decisions as a guide as tribunal chairs appear to love ignoring them anyway.

          Andy
          Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

          I do not accept any liability to you in relation to the advice given.

          It is always recommended you seek further advice from a solicitor or legal expert.

          Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

          Comment


            #6
            One thing which isn't clear to me is the case where the invoice does not comply with the statutes. The money is not then owed, so if the invoice for the estimate is corrected and reissued after the 18 months period, is the sum still due?
            I am not a solicitor, I am a lessee/shareholder in conflict with the management. Please seek your own legal advice before relying on my comments in this forum!

            Comment


              #7
              @andydd - I agree which is why I thought I would start this discussion.

              Comment


                #8
                A lot are in the thread under Gilje and others v Chalgrove Securities Ltd.

                Section 20b is relatively simple, it becomes complicated when applying it to the facts when attempting to escape it!

                Simples; get your costs published well within 18 months.3/4 is achievable.

                If you can't it's a very very unusual problem such as the above, or as in most cases, either the organisation has a problem or someone needs firing.


                Right I am back now I used to have cordless mouse it has now been executed for being an arse.
                Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                Comment


                  #9
                  Originally posted by animal View Post
                  One thing which isn't clear to me is the case where the invoice does not comply with the statutes. The money is not then owed, so if the invoice for the estimate is corrected and reissued after the 18 months period, is the sum still due?
                  Yes as a general rule the invoice on an estimated charge should be due, bearing in mind the terms of the lease that might limit it and some other limitations.
                  Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                  Comment


                    #10
                    Originally posted by animal View Post
                    One thing which isn't clear to me is the case where the invoice does not comply with the statutes. The money is not then owed, so if the invoice for the estimate is corrected and reissued after the 18 months period, is the sum still due?
                    It would appear that a demand may be invalid (i.e no summary) but it still could count as a S20B Notice (it doesnt have to have a summary, it must just say costs have been incurred and you will have to pay them.

                    So when and if a valid demand is sent later it becomes payable even if 18 months has passed.

                    In fact the original 'cost have been incurred' notice could just be written on a scrap of paper, no summary and maybe even no FH address but would still be valid (its just a notice not a demand).

                    I believe thats how most LVT's/UT's have interpreted it.

                    Andy
                    Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

                    I do not accept any liability to you in relation to the advice given.

                    It is always recommended you seek further advice from a solicitor or legal expert.

                    Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

                    Comment


                      #11
                      Andydd that wouldn't apply as the demand here is estimated on account demands, not a cost incurred.

                      if it were an estimate of the incurred costs attempting to comply with section 20 b as the Court of Appeal Decision in Brent showed, an estimate of the final costs is neither a demand or a notice under section 20b if it cannot comply with the definition of costs incurred.

                      On the summary you are correct in that it might comply, as failure to give a summary allows you to withold, not invalidate ( save in terms of recovery in court).

                      But all must bear in mind that section 20 b does not give you the right to recover the amount, that rests on the lease.

                      And if a project staggers multiple years.
                      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                      Comment


                        #12
                        What if, having issued a Section 20B notice, I find the incurred costs exceed the amount I placed in the Section 20B? Can I add this later? There are two aspects to this question really;

                        1) Do I need to issue another Section 20B before demanding further service charge payments?
                        2) Once a Section 20B notice is served, does this prevent me from asking for higher amounts in future, even if incurred within the 18-month window.

                        Thanks in advance!

                        Comment


                          #13
                          Prob better off reposting..this thread is 7 years old
                          Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

                          I do not accept any liability to you in relation to the advice given.

                          It is always recommended you seek further advice from a solicitor or legal expert.

                          Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

                          Comment

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