Service Charges & Estate Management Update – June 2011
1st June 2011
Jean-Paul v Southwark LBC  UKUT 178 (LC)
(1) When are costs “incurred” for purposes of s.20B; and (2) Whether letters chasing payment of an estimated demand satisfied the requirements of s.20B(2)
In 2004 the landlord council proposed to carry out major works to Block One and Block Two, Stanswood Gardens. The tenants’ flat is in Block Two. On 27 July 2004 the council gave notice under s.20 and identified as the estimated contribution for the tenants’ flat £44,657.40.
On 16 October 2004 the council sent an invoice to the tenants for £44,657.40, giving as the account details “Estimate Charge: Refurbishment Stanswood Gardens.” On 17 March 2005 the council wrote to the tenants confirming the sums outstanding. The council wrote again on 19 August 2005 and on 17 February 2006 in the same terms as the letter dated 17 March 2005. The tenants never made a payment.
Between 22 December 2004 and 24 August 2005 the council made eight payments under the contract for the major works, totalling £1,067,814.39. Further payments were made in March 2006 and March 2007. The council’s evidence to the LVT was that the final account was agreed with the contractor in June 2007, although the final account was not issued until September 2008. On 1 October 2008 the council wrote to the tenants with the final account for their flat. It adjusted downward their contribution to £39,049.43. The final account was rendered by the contractor immediately before the demand of 1 October 2008.
The tenants argued before the LVT that, by reason of section 20B, none of the amount demanded from them was payable, because the costs were incurred more than 18 months previously (and no valid demand had yet been made) and no notification under subsection (2) had been given. The LVT rejected that argument, holding that the letters in 2005 and 2006 chasing payment for the major works satisfied section 20B(2).
On appeal, the tenants argued that the requirement in s20B was to specify the costs which had been incurred and that none of the letters did this. The amount referred to in the letters, £44,657.40, was the estimated contribution and not the costs which had been incurred. Although payments had been made at the time of the letters of 17 March 2005, 18 October 2005 and 17 February 2006, the amount stated in the letter was not related to these.
The LVT was correct to conclude that the letters constituted notifications for the purposes of section 20B(2). The letters had to be read in context.
The President (HHJ Bartlett QC) at para 17-18:
“Costs are only “incurred” by the landlord within the meaning of section 20B when payment is made. There is clearly a distinction between incurring liability (i.e. an obligation to pay) and incurring costs, and it is the latter formulation that is used in the provision.
“[It is not clear how much of] the payments under the contract had been made at the time that each letter…was sent…is attributable to works for the cost of which the tenants were potentially liable. It could be the totality of the amount demanded of them; it could be something less. The final two payments were made by the council in March 2006 and March 2007, but no demand or other notification was sent to the tenants between the letter of 17 February 2006 and the demand of 1 October 2008. If any part of these final payments related to works for the cost of which the tenants were potentially liable, none of this would be recoverable because the demand of 1 October 2008 was more than 18 months after the costs were incurred.
“For the purpose of determining whether the letters requesting payment or any of them constituted notification under section 20B(2) it is in my judgment right…that these should be read in context. At the time the invoice for “Estimate Charge”, 16 October 2004, the works had not commenced. At the time the first letter was sent on 17 March 2005 the works had been under way for four months and four payments had been made by the council to the contractors. By the time of the letter of 18 October 2005 the works had been completed and four further payments had been made. Under section 20B(2) the tenant must have been notified “that those costs had been incurred”. Each of the letters referred to the amount of “£44,657.40 in relation to Refurbishment Works conducted on Stanswood Gardens and invoiced in October 2004”. The words “Refurbishment Works conducted on Stanswood Gardens” clearly meant the works being carried out or having been carried out at the date of the letter. For these the council had incurred costs through making payments to the contractors. The amount of £44,657.40 was an overstatement of those costs, since it was the amount that had been invoiced in October 2004 in advance of the works commencing, but an overstatement of the costs incurred would not in my judgment prevent a demand being a notification for the purposes of section 20B. Given the purpose of the provision as articulated by Etherton J in Gilje, the demand would have fulfilled its function.”
Counsel for the tenants accepted that this was a technical argument and that, having accepted that the council had incurred a substantial liability and that the work had been done to a satisfactory standard, the tenants’ claim was unmeritorious. Landlords will be pleased to see common sense being applied.
Notes contained in rent demand notice to long residential leaseholders corrected
The Landlord and Tenant (Notice of Rent) (England) Regulations 2004 (SI 2004/3096) came into force on 28 February 2005. The regulations relate to the form and content of notices requiring payment of ground rent in respect of residential leases.
The form of the rent demand notice is contained in the schedule to the regulations and contains “notes for leaseholders”. Paragraph 3 of the notes previously stated that:
“Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges or administration charges (or a combination of them) if the amount owed is £350 or less, or none of the unpaid amount has been outstanding for more than three years.”
It came to the attention of the Department for Communities and Local Government (DCLG) that this paragraph was misleading. Consequently, on 17 May 2011, the DCLG published a correction slip dealing with paragraph 3.
Paragraph 3 of the notes now make it clear that forfeiture action cannot be taken for non-payment of rent, service charges or administration charges (or a combination of these) unless the unpaid amount is more than £350 or consists of (or includes) an amount which has been outstanding for more than three years (see DCLG: Change to ground rent notice (May 2011)). The notes now accurately reflect section 167 of the Commonhold and Leasehold Reform Act 2002 and the regulations made under it.