Service Charges & Estate Management Update – May 2013
1st May 2013
Burr v OM Property Management Limited  EWCA Civ 479
The Court of Appeal affirmed the Upper Tribunal’s decision (2012] UKUT 2 (LC)) that costs are “incurred” for the purposes of s.20B when an invoice is served or payment is made.
OMP is a management company which manages the development at Royal Earlswood Park, Redhill, Surrey. Mr Burr’s flat forms part of the development, which includes a communal leisure centre with a swimming pool which has its own gas supply. OMP started managing the development in April 2001. At that time it was told by the developer that the gas supply to the swimming pool was supplied by EDF Energy (“EDF”). For several years, OMP read the meter and sent the readings to EDF who generated invoices which the respondent paid. The charges were paid from the payments made by the tenants. In November 2007, OMP received notification from Total Gas and Power Limited (“Total”) that it, rather than EDF, had been supplying the gas to the swimming pool. Total demanded £135,337.28 for the period December 2000 to November 2007.
The LVT held 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.
OMP appealed to the Upper Tribunal contending that costs were not “incurred” for the purposes of section 20B until OMP actually paid the costs or at least until it was obliged to pay the costs on receipt of an invoice. Accordingly, the LVT was wrong to hold that OMP had incurred the costs when the gas was supplied.
The Upper Tribunal (HHJ Mole QC) allowed the appeal. In para 23 of the Decision, HHJ Mole QC said:
“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.”
On appeal to the Court of Appeal Mr Burr submitted that the effect of the Upper Tribunal’s decision is to undermine and defeat the legislative aim of protecting tenants from demands for expenditure of which they are not sufficiently warned to set aside provision. If the decision is allowed to stand there is no limit to the time that may elapse between the date when services are provided (or supplies are made) to a landlord/management company and the date when a tenant may be called upon to pay by way of service charge under a lease. A supplier or service provider may delay years before requiring payment by a landlord or management company. It was clearly not the intention of Parliament that tenants should face stale demands for payment of service charges in this way. The very reason why section 20B was enacted was to protect tenants by preventing this kind of thing. The phrase “costs incurred” must, therefore, be construed so as to promote the protection of tenants from stale demands. For that reason, costs are incurred when services are provided (or supplies made), and not when the landlord (or management company) receives an invoice or pays for them.
Decision of Appeal
The Court of Appeal upheld the decision of the Upper Tribunal. Giving the judgment of the court, the Master of the Rolls (Lord Dyson) held that “a liability must crystallise before it becomes a cost.” Costs are not “incurred” within the meaning of section 18, 19 and 20B on the mere provision of services or supplies to the landlord or management company.
Like the Upper Tribunal, the Court of Appeal did not find it necessary to decide whether costs are incurred on the presentation of an invoice (or other demand for payment) or on payment.