Service Charges & Estate Management Update – March 2012
1st March 2012
OM Property Management Limited v Burr  UKUT 2 (LC)
This is a case on s.20B which appears to re-open the question of whether costs are “incurred” when an invoice is served or payment is made.
The LVT had clearly erred in finding that the costs of gas were incurred when the gas was supplied, not when the gas company invoiced the landlord or the landlord paid the bill. The case is only notable because of HHJ Mole’s comments in the penultimate paragraph of the decision.
In Jean-Paul and another v the London Borough of Southwark  UKUT 178 (LC), the President held “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.”
Jean-Paul v Southwark was cited in argument in Brent London Borough Council v Shulem B Association Ltd  EWHC 1663 (Ch). In that case, Morgan J considered the construction of s.20B. In Burr, HHJ Mole QC accepted that “it is possible to read some of the comments made by Morgan J in paragraph 58 of his judgment [in Brent v Shulem] as indicating that he thought the costs might be incurred at a date earlier than actual payment.” In that passage, however, Morgan J was considering a practical point that was not essential to his decision and, even if it was clear, which it is not, that this was his view, it would be obiter dicta.
In paragraph 23 of Burr, HHJ Mole QC concluded:
“The true answer is that as a matter of the interpretation of section 20B ‘costs’ are ‘incurred’ on the presentation of an invoice or on payment; but whether a particular cost is incurred on the presentation of an invoice or on payment may depend upon the facts of the particular case. It is possible to foresee that where, for example, payment on an invoice has been long delayed, the decision as to when the cost was actually occurred might be different depending on the circumstances; it might be relevant to decide whether the payment was delayed because there was a justified dispute over the amount of the invoice or whether the delay was a mere evasion or device of some sort. In the former case the tribunal of fact might find that the costs were not incurred until a genuine dispute was settled and the bill paid. In the latter case the tribunal might be very reluctant to allow deliberate prevarication to postpone the running of the time limit imposed by section 20B. That is the sort of factual matter that the LVT is well placed to decide.
Landlords will not appreciate the Upper Tribunal re-opening an issue that appeared to have been conclusively settled only last year. The President’s interpretation in Jean-Paul v Southwark is clear and unequivocal and should be preferred. This case may, however, assist tenants where landlords have been slow to pay invoices without good reason.