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Court Limits Protection Against ‘Stale’ Service Charge Demands

In a case where a flat tenant objected to being charged for gas supplies up to seven years in arrears, the High Court has ruled that, on a correct interpretation of section 20B of the Landlord and Tenant Act 1985, utility costs are ‘incurred’ not upon supply of services but when payment is demanded or made.

Pool 2The dispute arose due to an error by a property management company in paying the wrong utility company in respect of gas used to heat a swimming pool. The mistake was not uncovered for seven years and resulted in a charge of more than £100,000 being added to tenants’ service charges in a single year.

One of the tenants objected on the basis that, had the charge been spread over seven years, much of the cost would have fallen on a previous occupier of his flat. Citing section 20B, he argued that the cost of the gas supplies was unrecoverable from tenants in that it had been incurred more than 18 months prior to the date on which demand for payment from tenants was made.

The tenant’s arguments succeeded before the Leasehold Valuation Tribunal which held that the cost had been incurred on the date when the gas was supplied. However, that decision was subsequently reversed by the Upper Tribunal and that decision has now been upheld by the High Court.

The court recognised that the purpose of section 20B was to protect tenants against stale service charge demands issued without adequate notice. However, in dismissing the tenant’s appeal, the court ruled that the cost of the gas supplies was incurred either upon presentation of the invoice to the management company or upon payment of the same.