My Landlord says that he has satisfied the requirements of Section 20B because it does not apply to building insurance premiums, and because he sent invalid demands for payment at an earlier date. Is my Landlord right?

Reader’s E-mail:
A two part question:

1 – My Landlord who has been absent for 4 years recently issued me a notice for 4 years worth of service charges. I have disputed some of the charges as most of them fall well outside the 18 month window of Section 20B. However the landlord insists that as Buildings Insurance is mentioned in my lease document that 20B is not valid in this case. What do you think.

2 – My landlord first sent invoices for service charges with the address for my property wrong (wrong street and number), he also did not include a summary of rights and obligations. I pointed out the mistakes and he took 8 months to correct this, which significantly effects the 18 month window. I consider it to be from when i received correct notice, he says the first invoices is still valid despite mistakes.

Reply from Service Charge Dispute Guide

The first part of your question can, we believe, be answered by a careful reading of the wording used in the Landlord and Tenant Act 1985 (LTA 85).

Section 20B states: “If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2) ), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred“.

We have highlighted the term ‘service charge’ because this term is used to define that to which the restrictions in Section 20B apply. This may sound like a obvious point, but it is the crucial one: Section 20B is only relevant to ‘service charges’, not other types of cost a leaseholder may pay, such as Ground Rent or administration charges.

The next part of the puzzle is deciding whether a building insurance premium is, or is not, a ‘service charge’. Your Landlord may be trying to argue that a building insurance premium is not a ‘service charge’ and that therefore Section 20B does not apply.

Section 18 of the LTA 85 is helpful in this respect as it provides a definition of what the term ‘service charges’ means in respect of the provision of the Act:

“(1)In the following provisions of this Act “service charge” means an amount payable by a tenant of a [dwelling] as part of or in addition to the rent—(a) which is payable, directly or indirectly, for services, repairs, maintenance [improvements] or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs

Section 18 clearly identifies a charge for a share of the insurance of communal areas as being a ‘service charge’, and therefore we are at loss to see what legal basis your Landlord has for saying that Section 20B does not apply to charges in respect of the building insurance premium.

The second part of your question relates to whether the service charge demands initially sent satisfy the requirements of Section 20B of the LTA 85. In your e-mail you highlight two defects in the invoicing process which you are concerned may mean that the service charge demands originally sent do not statisfy the requirements of Section 20B.

The first of these defects is that the original service charge demands were not sent with the summary of rights and obligations as required by Section 21B of the LTA 85. Whilst you are absolutely correct to identify this as a defect in the invoicing process, because inclusion of the summary is required by Law, we think that it is likely that a demand for payment which does not statisfy the requirements of Section 21B may still satisfy some or all of the requirements of Section 20B. Our reason for saying for this is that under Section 20B a Landlord has the option to either make a demand for payment within the 18 month period, or issue a notice identifying the costs incurred and stating that the monies will need to be paid at a later date (this notice is commonly described as a ‘section 20B notice’). The Law does not set out any prescribed format for a ‘section 20B notice’, all that is stated is a list of the information that must be included in the notice. Depending on exactly how the earlier defective service charge invoices were worded, they may in fact fulfil the requirements of what a landlord is expected to include in a ‘section 20B notice’ even if the service charge invoices do not count as a ‘demand’ for the purposes of Section 20B.

The second defect with the earlier service charge invoices is that they were sent to the wrong address. At this point the legal issues become more complex and the reality is that if this particular point of law were considered by a Court or a Tribunal there is a degree of uncertainty over what they might decide.

Section 20B states that within 18 months a Landlord must either make sure a ‘demand for payment is served on the tenant‘ or alternatively the ‘tenant must be notified‘ in writing that costs have been incurred and that a Leaseholder must pay those costs as service charge charge in the future. If the service charge invoices were sent to the wrong address, then it is fairly clear that they have not ‘served‘ you with a demand for payment. However, we think that there is less clarity in respect of the issue of whether you have ‘been notified‘ in writing of the costs. In your e-mail you state that you pointed out to your Landlord that he had put the wrong address on the original service charge invoices, which is evidence that you actually received the invoices. Even though, in the strict legal sense you might not have been ‘served’ with a demand for payment, in practice you were ‘notified‘ in writing, even though this happened by good fortune rather than competent management on the part of your Landlord. And for this reason a Court or Tribunal may well decide that an invalid demand for payment, sent to the wrong address, in fact satisfied the requirements of Section 20B.