Service charge - Flat - Restriction on recovery of service charge

Brent London Borough Council v Shulem B Association Ltd [2011] All ER (D) 238 (Jun), (Morgan J) [2011] EWHC 1663 (Ch)

The claimant local authority, the lessor, was the freehold owner of five blocks of flats.

The defendant company was the lessee of 15 of the flats.

By cl 2(6) of the lease, the lessee convenanted with the lessor to pay and contribute a proportion of the expenses of repairing the exterior of the flat (see [7] of the judgment).

In around 2003, the lessor took the view that extensive works were required to the blocks.

The works in question amounted to 'qualifying works' within s 20 of the Landlord and Tenant Act 1985 (the Act) and therefore the lessor sought to comply with the consultation requirements imposed by s 20 by, inter alia, sending an estimated costs for the works on 12 March 2004.

The lessor entered into a building contract with the chosen contractor.

Under that building contract an administrator valued the work as it progressed and prepared certificates of valuation to identify the sums payable on account by the lessor to the contractor.

There were altogether nine certificates issued. Certificates 1-7 inclusive were issued prior to 15 December 2006.

On 23 February 2006, the lessor wrote to the lessee seeking payment of estimated costs within 28 days.

The lessee failed to pay any sum.

On 15 December 2006, the lessor wrote to the lessee enclosing the actual invoice for the major works.

Section 20B(1) of the Act provided to the effect that if any of the costs of the service charge were incurred more than 18 months before a demand for payment of the service charge was served on the tenant, then the tenant was not liable to pay so much of the service charge as reflected the costs so incurred.

Sub-section 2 provided that sub-s 1 was not to apply if, within a period of 18 months beginning with the date when the relevant costs in question had been incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge.

The lessor brought proceedings against the lessee to recover various sums which included sums said to be due under cl 2(6) of the leases.

The lessee defended the proceedings on the basis that the relevant costs were incurred by the lessor more than 18 months before 15 December 2006 and relied on s 20B of the Act. The lessee applied to strike out the claim.

That application was refused with the judge holding that the letter of 23 February 2006 was not a valid demand for the purposes of cl 2(6) of the leases and/or for the purpose of on s 20B(1).

He considered that the letter of 23 February 2006 was a relevant notification for the purposes of s 20B(2) in that it notified the lessee that the costs which were the subject of s 20B of the Act had been incurred.

He declined to strike out the proceedings.

The lessee appealed. It was common ground that the letter of 15 December 2006 was, in point of form, a valid demand under cl 2(6) of the lease in each case and that the lessor had incurred costs in relation to the matters covered by certificates 1 to 7.

The parties did not agree however as to the precise date when the lessor should be taken to have incurred costs for the purposes of s 20B in relation to certificates 1 to 7.

The lessor accepted that the costs were incurred in respect of each of the certificates numbered 1 to 7 more than 18 months before the demand of 15 December 2006.

Accordingly, if the demand of 15 December 2006 was the only relevant demand, then that demand did not comply with s 20B(). In relation to the costs incurred pursuant to those certificates, as it was not served on the lessee within the requisite period of 18 months from the date when the relevant costs were incurred.

The lessor contended that the demand of 15 December 2006 was not the only relevant demand and that the letter of 23 February 2006 was a relevant demand for the purposes of s 20B(1) of the Act.

If the letter of 23 February 2006 was a relevant demand, then the lessee accepted that the costs which were the subject of certificates 3 to 7 were incurred by the lessor within the relevant 18 month period.

The issues to be determined were, inter alia: (i) whether the letter of 23 February 2006, was a valid demand for the purposes of cl 2(6) of the leases; and (ii) whether the letter of 23 February 2006, was a demand for payment of the service charge for the purposes of s 20B(1) of the Act.

The parties did not agree as to the extent of the statutory requirements. In particular, they did not agree as to what information had to be given to satisfy the requirement that the tenant was notified 'that those costs have been incurred'.

The lessee submitted that a notice for the purposes of s 20B(2) had to state the amount of the costs which the lessor state had been incurred. The lessor submitted that it was not necessary to state the amount of such costs.

He submitted that it was sufficient that the notification stated that the lessor had carried works or provided relevant services.

The appeal would be allowed.

(1) In the instant case, on a construction of cl 2(6) of the lease, because the letter of 23 February 2006 did not ask for a proportion of the lessor's expenses but asked for a contribution based upon figures which had not, or had not necessarily, represented the lessor's expenses, the letter had not conformed to the requirements of a demand for the purposes of cl 2(6) (see [52] of the judgment).

(2) Section 20B(2) of the Act was to be interpreted as to be understood that the written notification had to state a figure for the costs which had already been incurred by the lessor.

A notice which so stated would be valid for the purpose of sub-s (2) even if the costs which the lessor later put forward in a service charge demand had been in a lesser amount.

Secondly, the notice for the purposes of sub-s (2) had to tell the lessee that the lessee would subsequently be required under the terms of his lease to contribute to those costs by the payment of a service charge.

It was not necessary for the notice to tell the lessee what proportion of the cost would be passed on to the lessee nor what the resulting service charge demand would be (see [65] of the judgment).

The letter of 23rd February 2006 had not satisfied the requirement of sub-s (2) that the notification contained a statement 'that those costs had been incurred', when it had not purported to state what the actual costs had been and it had contained a statement that the actual costs might be greater than the estimated costs which were referred to and that the lessor would wish to recover any excess over the estimated costs referred to in the letter (see [68] of the judgment).

The letter of 23 February 2006 was not a demand for the purposes of cl 2(6) of the lease, nor a demand for payment of the service charge within s 20B(1) of the Act, nor a notification in writing for the purposes of s 20B(2) of the Act (see [70] of the judgment).

Marie-Claire Bleasdale (instructed by Bude Nathan Iwanier) for the lessee. Nicholas Grundy (instructed by Legal Services, London Borough of Brent) for the lessor.