Landlord cannot demand payment of service charges out of time

A landlord could not get round the requirement to make a “demand for payment of the service charge” within the 18-month time limit specified in law.

That was the ruling of the Court of Appeal in a case involving a landlord that held the head lease of the residential parts of a large mixed-use development. Several residential flats in the building were let on long leases to a tenant that sub-let them to residential occupiers.

The leases permitted the landlord to recover the costs of providing electricity and other utilities, and to levy a service charge. Supply of utilities was metered, and each of the flats had individual meters.

A utilities monitoring company prepared a statement for each occupier and the landlord’s managing agent would use the statements to demand payment from tenants of the flats. Between 2008 and 2012, each utilities statement included a “standing charge”.

The nature of the standing charge was not explained but it was intended to cover the monitoring costs of reading the meters and calculating the sums due.

A dispute arose and the Upper Tribunal (Lands Chamber) held that the standing charges could only be recovered as part of the annual service charge because it was not part of the cost of utilities.

It remitted the matter to the First Tier Tribunal, suggesting that the landlord would have to re-demand the standing charges as part of the service charge. However, under the Landlord and Tenant Act 1985 s.20B(1), a tenant was not liable to pay a service charge that had been incurred more than 18 months before service of a “demand” for payment.

The tribunal therefore held that tenants of the flats were not liable to pay the standing charges as part of the service charge.

The Court of Appeal upheld that decision.

It held that a “demand” for the purposes of s.20B(1) had to be a contractually valid demand which was served in accordance with the service charge provisions of the relevant lease.

In this case, the standing charges had never been demanded from the tenant under the service charge provisions in the leases; they had only been demanded under the covenant to pay electricity and other utilities, and such demands were invalid.

As a matter of contract law, the validation of the original demands did not take effect retrospectively, with the result that the 18-month limit could not be circumvented.

Section 20B(1) laid down a bright line rule that might sometimes produce results that appeared harsh, but that was inherent in almost any limitation provision.

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No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd
Court of Appeal (Civil Division)
21 July 2021
[2021] EWCA Civ 1119
Underhill LJ;
Henderson LJ;
Dingemans LJ