Service charges: Whether the ’18 month rule’ applies where a leaseholder does not receive a valid service charge demand (Cookson v Assethold Ltd – 2020)

Where a landlord makes demands of an RTM Company rather than individual leaseholders, and where service charge demands do not meet statutory requirements, are service charges payable under the ’18 month rule’ contained at S.20B of the Landlord and Tenant Act 1985?

The background

In Cookson v Assethold Ltd [2020], a property comprised 3 self-contained flats and had been managed since 10 October 2016 by an RTM Company owned by the leaseholders. The appellant applied to the First-tier Tribunal for determination as to the payability of service charges demanded by the landlord.

The leases contained standard service charge provisions, and the claim referred to service charge year 2015/16 and 25 March 2016 to 9 October 2016, after which the RTM Company assumed management. In her application, the leaseholder itemised service charges demanded up to October 2016 and the FTT was asked to determine whether those sums were reasonable and payable, and whether S.20B of the Landlord and Tenant Act 1985 applied.

This provision states that service charge sums are not payable where they are demanded more than 18 months after they were incurred. However, if the landlord notifies the tenant during that 18 month period that the sums have been incurred and will receive a demand for them, then those sums are payable.

The leaseholder claimed that she had not received a demand for March to October 2016 and that these demands were made of the RTM Company, although the period preceded its appointment. The landlord argued that the leaseholder was aware of the sums, and that information of sums incurred had been provided to the RTM Company on its appointment. There were two possible documents that could be classed as ‘sufficient notice’ to the leaseholder:

1. A schedule provided to the RTM Company by the landlord on appointment, which did not meet statutory requirements being undated, addressed to the RTM Company and not the leaseholder, uncertified and not containing tenant’s rights and obligations; and
2. A service charge demand from 2017 which did not itemise charges, was uncertified and does not contain information required by statute. This document was not therefore a valid demand.

The decision

The Upper Tribunal allowed the leaseholder’s appeal, finding that no service charge was payable for the March to October 2016 period.

Demands did not meet statutory requirements, being incorrectly addressed and demanding sums on an estimated, rather than confirmed, basis. As demands were not validly made, they cannot meet the requirements of the ’18 month rule’ as they didn’t notify the leaseholder that the defined sums had been incurred and would be demanded.

Advice and action

A note of caution for landlords and agents, this decision highlights the importance of ensuring that service charge demands are made properly, meeting all the statutory requirements to be classed as valid and notifying leaseholders of defined sums incurred to avoid falling foul of the ’18 month rule’.

It is recommended that landlords and agents implement thorough processes to ensure that sums are notified, demanded and recovered in accordance with statute, in particular taking care to make demands which are correctly addressed, certified and containing notices of the leaseholders’ rights and obligations.