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Section 20B (the ’18 month rule’)

Summary

1. This section states that a leaseholder is not liable for payment of a service charge of any amount unless:

i. A landlord sends a demand for payment within 18 months of a cost being incurred

Or

ii. A landlord notifies a leaseholder in writing within the same 18 month period that a cost has been incurred, amount of that costs, and they will be required to pay that cost as a service charge at a later date.

When is a cost incurred?

1. For the purposes of the ‘18 month rule’ a cost is incurred either on the date a landlord receives either a demand to pay for the relevant cost, or the landlord makes payment of the cost, whichever happens first.

What counts as a demand for payment of a service charge?

1. For the purposes of section 20B the demand can be either for payment ‘on account’ for an estimated future service charge liability, or can be a demand for payment of costs which have already been incurred.

2. An estimate of a service charge liability, in response to which payment is not mandatory, does not count as a demand for payment.

3. A service charge invoice which does not meet the contractual requirements of a lease, does not count as demand for payment.

4. A request for a contribution to a reserve fund is unlikely to count as a demand for payment of a service charge for the purposes of section 20B.

What is a Section 20B notice?

1. The law says that if a landlord can’t, for any reason,  send out a demand for payment within 18 months of a cost being incurred they can send a special kind of letter out (known as a ‘Section 20B Notice’) instead of a demand for payment.

2. If this special kind of letter is prepared properly and sent within the 18 months, then this is the only time a landlord can demand payment later than the 18 months.

What does a Section 20B have to include?

1. In order to meet the requirements of section 20B the notice must:

i. List what costs have actually been incurred by the landlord, at the time of writing, in relation to the leaseholder’s building or estate.

ii. List only the relevant costs. A notice which includes non-chargeable costs, such as those incurred in respect of a building or estate to which a leaseholder is not required to contribute, does not meet the requirements of section 20B.

iii. Include all the costs the landlords wishes to charge for in the future, including any management fee or relevant VAT. If such costs are not listed then the notice does not meet the requirements of section 20B in respect of those costs.

iv. The notice must make clear to the leaseholder that the landlord intends to charge the leaseholder a share of those costs as service charge under the terms of their lease.

Relevant Case Law

See the section of our case law library on the 18 Month Rule (Section 20B)

Click on the link to read more about the Landlord and Tenant Act 1985