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Service Charges: OM Property Management v Thomas Burr [2013] EWCA Civ 479

For the purposes of the Landlord and Tenant Act 1985 (“the Act”) when are costs properly said to have been “incurred”?

Regular readers of the Round-Up will recall last year’s summary of “Re: 9 Cambridge Square, Redhill [2012] UKUT 2 (LC)”. Cambridge Square was a development built in 2000 which included a communal leisure centre and swimming pool with its own gas supply. OM Property Management Limited took the gas meter readings and advised the company that they had been informed was the gas supplier, which company then rendered bills which were paid as part of the service charge. This continued for about six years when it was discovered that a different entity had been supplying the gas and (after negotiations) it was concluded that a further £100,000 odd was due. This was billed as part of the year ending 2008 service charge. Mr Burr had only been a leaseholder since late 2006 and he argued that the additional gas charges were time barred under the Act as they were a “relevant cost” which had been incurred more than 18 months before the demand. 

The Upper Tribunal rejected Mr Burr’s arguments and held that the time of incurring a liability was not necessarily the time that a cost was incurred. Each case would have to be decided on a case by case basis. 

In a decision handed down on 3 May 2013, the Court of Appeal had no doubt that the Upper Tribunal was correct. The Master of the Rolls held (1) There was an obvious difference between a liability to pay and the incurring of costs. A liability must crystallise before it becomes a cost (2) The draftsman of the Act had recognised the difference between a liability to pay and the incurring of costs (3) The incurring of costs entails the existence of an ascertained or ascertainable sum which is capable of being adjusted by repayment, reduction etc. 

The Court of Appeal did not find it necessary to decide whether costs are incurred on the presentation of an invoice (or other demand for payment) or on payment.

Elizabeth Haggerty / 1st Jun 2013


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