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I am a landlord. Can I successfully take formal legal action against a leaseholder who has let out their flat, provided no correspondence address, and then not paid their service charges for a long period of time?

Reader’s E-mail:

I am Freeholder of 12 flats. One of our leaseholder Mr.H disappeared without notifying us of his forwarding address in 1995 or who was his managing agent in his absence. It was after 20 we manage to locate the agent but they refuse to give leaseholder’s address. We did not give them the service charge demand notes as this leaseholder had not given us any authority. We have now located him and he replied in his email that he gave instruction to his tenants to forward his mail to him. We did send him the demand notes through his letter boxes but whether he got it or not it is his business. Lot of his tenants were foreigners who were abusive towards us. We have now taken legal action but by law we can only get last 12 years. Our solicitor says that we may not get any monies because we did not serve Section 20 notice. They were sent by recorded delivery to his address and last year I even sent the service charge demand note by recorded delivery but there was no reply or payment. All these years he kept on sending £25pa ground rent as if he was still living in his flat but he was not. Because the other leaseholders paid upto date we manage the building paying his share of insurance, garden, cleaning etc. I do not understand how I have committed a crime when the leaseholder has been the fraudster. If he did not get demand note it is between him and his tenants and how can we be at fault re. Section 20 notices. Surely there is a time limit on that during which time he should replied. He bought his flat in 1984 for about 80K and today in London that property is worth 200K. Because we paid for the maintenance, insurance his property has gone up so why should I still be punished. He has also not paid a single penny towards sinking fund. I want to take him to first tier tribunal (property) but my solicitor is coming with all sorts of problems that with demand notes etc. I should have send this summary etc. What are my chance of getting last 12 years service charges, plus legals costs, plus interest ? Many thanks for your help.

Reply from Service Charge Dispute Guide

1. We are unable to provide you with a reliable prediction of whether your claim would be successful (we do not have sufficient information to do this) and we are reluctant to interfere with the work being undertaken by your legal advisers.

2. However, what we believe may be helpful to you in this situation, and your solicitor, is to run through some of the issues you refer to in respect of the legislation and some key item of case law. We hope in doing so that we do not work against your solicitor, but rather add some thoughts and information which might help them progress your case.

3. Section 21B of the Landlord and Tenant Act 1985 requires that service charge demands are accompanied by a statement (the Service charges – summary of tenants’ rights and obligations) with the wording and format prescribed by the government in the relevant regulations.

4. In England this requirement came into force on the 1st October 2007 and on the 30th November 2007 in Wales. If you are considering a 12 year period then it may be the case that Section 21B does not apply to some of the demands sent near the beginning of that period.

5. What Section 21B states is that if the statement is not sent then the leaseholder has the right to withhold payment. What the legislation does not say is that the failure to send the statement means that the leaseholder is relieved of the obligation to pay that service charge. This is an important distinction.

6. During the past five years there have been a number of cases heard by the Upper Tribunal (UT) of the Lands Chamber dealing with the question of whether a landlord might, at a later date, take action to correct a defect in a demand already sent and regain their entitlement to demand payment of a service charge. The UT is the body to which a party to case at the First Tier Tribunal (FTT) may appeal, and the decisions of the Upper Tribunal set a binding legal precedent to be followed by the FTT when they are dealing with relevantly similar legal issues.

7. One such case is Tingdene Holiday Parks Ltd v Cox and others [2011] UKUT 310 (LC). In this case the landlord had attempted to correct their omission in not sending the required statement with a service charge demand by sending the statement separately at a later date. The UT decided that this was not sufficient and that the statement must actually be sent with the demand.

8. The implication of the Tingdene Holiday Parks case is that in order for a landlord to correct a service charge demand which is defective (because they did not include the Section 21B statement) they must actually reissue the demand.

9. There is, however, a potential problem with this strategy of reissuing demands and that comes in the form of the requirements of Section 20B of the Landlord and Tenant Act 1985.

10. Section 20B states that a service charge is not due for payment unless, within an 18 month period of the relevant costs being incurred, a landlord either:

i. Demands payments of those costs

Or

ii. Notifies the relevant leaseholder that the costs have been incurred, the total amount of the costs (for their specific building or estate) which is relevant to their service charge, and that they will be required to pay those costs at a later date.

11. The Court of Appeal and the UT have both concluded that a cost is incurred for the purposes of section 20B when a landlord either receives an invoice for those costs, or they pay them, which ever occurs first.

12. The reason that section 20B creates dangers for a landlord who attempts to correct an earlier defective demand by issuing a further demand, is that this further demand might not meet the requirements of section 20B and the service charge is therefore not payable on this basis. Because your claim relates to a number of years past this problem potentially applies in your case and your solicitor is therefore absolutely correct to be concerned that you may have difficulties now recovering payment whatever action you now take.

13. There is case law in the UT and upper courts, however, that provides useful guidance on this specific issue and sets legal precedents for the FTT or County Court to follow.

14. In the case of Brent LBC v Shulem B Association [2011] EWHC 1663 (Ch) the High Court decided a defective demand did not count as a valid demand for the purposes of section 20B and therefore fell foul of the 18 month rule. At a glance this case suggests that there might be nothing a landlord might do to subsequently correct a defective demand because, if more than 18 months have elapsed since the costs were incurred, the service charge would not be payable anyway.

15. However, it is important to note that in the Brent LBC case the High Court was concerned with a very specific type of defect: the demand was not prepared in accordance with the terms of the lease and therefore ‘contractually invalid’.

16. In the more recent case of Johnson v County Bideford [2012] UKUT 457 (LC) the UT considered some of the same legal issues. In this case the UT decided that there was a distinction to be made between a demand which was contractually invalid, and one which was invalid because it did not meet the requirements of statute. The distinction was described as based on the argument that a demand which was defective because it did not comply with the legislation could be corrected retrospectively, whilst a demand which was contractually invalid could not.

17. In the Johnson case the UT suggests that a service charge demand which was invalid because it did not comply with the legislation might still be a valid demand for the purposes of section 20B so long as that original demand was contractually valid.

18. The UT came to the same conclusion in the case of MacGregor v BM Samuels Finance Group Plc [2013] UKUT 471 (LC).

19. In your e-mail you do not specify the respect in which your solicitor is concerned that you may have failed to comply with the requirements of Section 20 of the Landlord and Tenant Act 1985. Assuming that you did not comply with section 20 your solicitor will be aware that under Section 20ZA of the Landlord and Tenant Act 1985 landlords are entitled to apply to an FTT for ‘dispensation’ of the consultation requirements.

20. If dispensation is granted, then the limits of £250 for qualifying works and £100 per year for qualifying long term agreements no longer apply.

21. In many instances, applications for such a dispensation are made on the day of the hearing at the invitation of the FTT if a question regarding possible non-compliance with section 20 is raised. To apply you need to fill in a form and provide a cheque for the fee. A practical tip for landlords attending an FTT hearing is that they should always bring a cheque book.

22. The legislation is silent on the issue of how an application for dispensation of the section 20 consultation requirements should be assessed, however, the Supreme Court has provided definitive guidance on this point in the case of Daejan Investments Limited v Benson and others [2013] UKSC 14.

23. To crudely summarise the judgement (and without the nuances) what the Supreme court decided was a landlord should almost always be granted a dispensation so long as the leaseholder is compensated for any ‘prejudice’ they experience in the form of a reduction of their service charge.

24. Again the legislation does not define what this term ‘prejudice’ means, but the Supreme Court provided a very useful workable definition in this context: prejudice is the financial loss which a leaseholder experiences as a consequence of the breach or breaches of the consultation requirements.

25. Furthermore, the Supreme Court ruled that in order to win compensation for prejudice it is up to the leaseholder in question to make a convincing case that had they been consulted properly then things would have turned out better for them.

26. If a leaseholder has not provided their landlord with an address at which they might receive the relevant notices, they may experience substantial difficult in claiming that had the correct notices been sent to an address from which mail never reached them that this would have provided them with any advantage whatsoever.

27. We find it difficult to conceive of a situation where a leaseholder is placed in a better position by the existence of an unopened letter containing a section 20 notice which is subsequently discarded by their sub tenants.

28. In respect of the correspondence address issue, we are not aware of any legislation or case law which suggests that a landlord who sends correspondence to the last known correspondence address (particularly in that address is the property held under the relevant lease) of their tenants is acting incorrectly in a way which would limit their ability to reclaim the service charge.

29. In respect of this point, it may be helpful to check the lease as it may state something about the obligations of the leaseholder to provide a valid address for the purposes of issuing notices and demand.

30. As a final, and brief, point we would like to direct you to some previous questions and answers on our website which may be relevant to your situation.

i. In respect of the time limit on the recovery of service charge you may find it useful to read our post entitled Does the Law entitle my Landlord to limit the refund of overpaid Service Charges to a 6 year period?.

ii. In respect of legal costs there is information which may be relevant to you in our article entitled Can my Landlord charge me Legal costs following an FTT decision that these could not be charged to me as a Service Charge?.

Click on the link to read more Reader’s Questions and Answers on Billing and Refunds

Click on the link to read more Reader’s Questions and Answers on the 18 Month Rule (Section 20B)

Click on the link to read more Reader’s Questions and Answers on Consultation (Section 20)

Click on the link to read more Reader’s Questions and Answers on Service Charge Arrears & Affordability