The ’18 Month’ rule – make sure you comply
Following logically on from our article about service charge demands you must remember that whilst most leases ask for service charge payments in advance there may be some instances where work has been undertaken but demands for payment via the service charge have not as yet been made. In those instances it is vital to remember that demands for service charge payments must be made within 18 months of those costs having been incurred (Section 20B of the Landlord and Tenant Act 1985). Even where leases reserve the service charge as rent – so it is recoverable as rent – this rule and limitation applies.
Costs are not recoverable at all if incurred more than eighteen months before being demanded – so you must be alert to this issue if you have a site where works have been undertaken but no demands have yet been made. It will be important to calculate the 18 month period to ensure the time limit is not missed.
Better still would be to give all leaseholders notice in writing within that 18 month period that the landlord has incurred costs and that in due course the landlord will demand payment of those costs via the service charge from all leaseholders.
This notice then operates as an exception to the ’18 month’ rule but you must still be careful to ensure that notice is given within the requisite time frame. Laurels must not be rested upon and efforts must be made to get the accounts in order so that demands can be made in due course.
Note, however, that failure by the landlord to serve notice of accounts of actual service charge expenditure within 18 months of the expenditure being incurred would not necessarily mean that the landlord was not entitled to recover all of the expenditure via the service charge where:
- payment of service charge was made on account by interim payments;
- the actual expenditure did not exceed the service charge payments made on account; and
- no request by the landlord to the tenant was made for any further payment.
[Gilje v Charlegrove Securities Ltd. [No 2]]
It should also be noted that any notice under Section 20B must be in respect of costs actually incurred and not costs which were uncertain or yet to be incurred. If the notice only gives details of the latter then the landlord would not be able to show that it had notified the tenant of a liability for actual costs so consequently would not be entitled to recover the sums claimed but be limited to the statutory maximum which will usually fall well short of the sums expended by the landlord.
[London Borough of Islington v Abdel Malek ].
If you have any difficulties with sites that may be affected by this issue or need assurance on the time limits or assistance with the notice please contact Analise Broomhall on 0333 0 300 200 or email at email@example.com.