In May 2018 our Legal Update (see here) “Limitation on recovery of service charges - “The 18 Month Rule” provided guidance on the limitations on recovering service charges from residential leaseholders under Section 20B(1) Landlord and Tenant Act 1985 and the importance of getting that right.  Today we centre on a long running case called East Tower Apartments Limited v No.1 West India Quay Residential Limited LON/00BG/LSC/2014/0 (“East Tower”).

Background

In East Tower the Landlord has been given permission to appeal to the Upper Tribunal (“UT”) on the issue of whether a demand under Section 20B(1) must be a contractually valid demand.  If the Landlord is successful, this will likely require the UT to find that Brent London Borough Council v Schulem B Association Ltd [2011] 1 WLR 3014 was wrongly decided.  Our May 2018 Legal Update touched on this case.

Facts of the case

The Landlord and Leaseholder have a long history of litigating the service charges payable for the 33-storey block. Most of the issues in dispute between the parties on this occasion were largely fact specific and not of particular note. However, an interesting point of law was raised in respect of some utility bills for the period 2008 to 2012.

Those demands were originally made on a fixed sum, flat by flat basis pursuant to a clause in the residential leases falling outside the general service charge machinery.

In 2016 the UT had previously found that these utilities were not in fact contractually recoverable under that clause, but would instead be recoverable pursuant to the general service charge.

The Landlord responded to this by re-apportioning and re-allocating those demands as a proportionate charge to the Leaseholders under the general service charge.  In doing so, the Landlord did not re-demand the utilities.

The Landlord argued that there was no need to re-demand these sums under the general service charge machinery, as the liability to pay those sums already existed under the leases.

However, it followed from the decision of the UT that those sums had not been demanded in a contractually valid form and that a new issue arose as to whether those service charges were now irrecoverable by virtue of Section 20B(1) of the Landlord and Tenant Act 1985.

Issues

Whether sums that are in principle recoverable under a lease service charge provisions and have previously been demanded under the contract, but in an invalid form, have been demanded for the purposes of Section 20B(1).

The Leaseholder’s position was that a “demand” under Section 20B(1) must be a reference to a valid demand under the relevant contractual provisions. This position was drawn from Judge Morgan J’s judgment in Brent LBC v Schulem at [53]:

“The reference to a demand in section 20B(1) presupposes that there had been a valid demand for payment of the service charge under the relevant contractual provisions. In this case, I have held that the letter of 23 February 2006 was not a valid demand for service charge under clause 2(6) of the leases. It follows that it was not “a demand for payment of the service charge” within section 20B(1).”

The Landlord argued that Morgan J was wrong if he truly decided that a “demand” under Section 20B(1) must be a contractually valid demand as this adds an unjustified facade on the wording of the statute.  In any event, the Landlord submitted that the costs summary sent out to the Tenants each year, which allegedly included heads of cost encompassing these utilities, satisfied Section 20B(2).

First instance

The First Tier Tribunal (“FTT”) found that it was bound by Brent LBC v Schulem, having no option but to follow the decision.  A demand for the purposes of Section 20B(1) is a contractually valid demand. The FTT went on to decide that the Landlord had not proven on the balance of probabilities that the costs summaries sent out to the Leaseholders each year did in fact include the utilities previously demanded invalidly.  The decision in Brent LBC v Schulem therefore remains valid for the moment.

It is believed that the Landlord has been given permission to appeal on the issue of the proper interpretation of Section 20B(1) and so, the saga continues...

We must now watch this space!

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

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