Regular readers of my blog will recall that I wrote an article last year on the Upper Tribunal case of OM Property Management Ltd v Burr which gave guidance upon what is known as the 18 month service charge rule under section 20B of the Landlord and Tenant 1985. Landlords are prevented from recovering service charge costs from tenants if they were incurred more than 18 months before they are demanded unless the correct form of prior notification is given.
The facts were peculiar in that they concerned the cost of heating a communal swimming pool, a facility that no doubt more long leaseholders would want as standard in their blocks.
OM Property Management Ltd (OMP) was given incorrect information about the gas supplier for the swimming pool heating system which eventually led to a bill for the period 2000 – 2007 in the sum of around £135,000. In the Leasehold Valuation Tribunal the LVT panel determined that the gas supply expense was incurred when the gas was supplied and not when the invoice was levied by the supplier.
OMP appealed to the Upper Tribunal who reversed the LVT’s decision on the basis that cost and liability are conceptually different, although there could be issues in cases where invoiced costs were diluted and not paid until outside the relevant period. In this case it was determined that the service charge cost was only incurred at the earliest, when the gas supplier rendered its invoice. That, you may have thought was the end of it. However, Mr Burr appealed to the Court of Appeal.
The Court of Appeal held firm and agreed with the Upper Tribunals view that a cost must crystallise for the 18 month clock to start ticking. The cost in this case only crystallised when there was a demand for payment by the supplier.
Mr Burr had argued that the purpose of section 20B was defeated by this approach in that it effectively removed the tenants statutory protection as there would be no end date for the payment of charges if invoices could be delayed for many years and tenants could not prepare for this (I don’t know if the impact of section 20 consultation was raised in the context of this proposition). However, the Court of Appeal disagreed with this and effectively said that the purpose of the statutory protection was not as wide as Mr Burr submitted.