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Property: Re: 9 Cambridge Square, Redhill [2012] UKUT 2 (LC):

Service charge — Landlord and Tenant Act 1985 s 20B — “costs” are “Incurred” when “expended” or “become payable”

A managing agent had paid the wrong gas supplier for the period 2001 - 2007. The correct supplier notified them of the error in November 2007 and presented a bill for a substantial six-figure sum. After negotiations the sum was reduced but a still significant sum was paid. Contributions from the leaseholders were demanded in the accounts for 30 April 2008 and a leaseholder objected on the basis that the gas charges were historic (pre-dating even before he acquired his interest). Section 20B of the Landlord and Tenant Act 1985 places a time guillotine on the recovery of service charge costs. It states “...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... the tenant shall not be liable ...”.

The LVT found that liability to pay for the gas incurred when it was consumed; as that was more than 18 months before payment was demanded so section 20B prevented recovery. The managing agents appealed.

HHJ Mole QC sitting in the Upper Tribunal (Lands Chamber) allowed the appeal. He found that whilst the liability to pay for the gas may have been incurred when it was consumed that does not mean that the cost of the gas was incurred then. Incurring a liability and incurring a cost are not one and the same and the 1985 Act concentrates on when a cost is incurred. Importantly, when a cost is incurred has to be decided on a case by case basis - “...’costs’ are ‘incurred’ on the presentation of an invoice or on payment; but whether a particular cost is incurred on the presentation of an invoice or on payment may depend upon the facts of the particular case”.

Elizabeth Haggerty / 1st Mar 2012


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