Q: We are a Registered Provider of Housing and we are intending to recover the costs of works which were carried out to the roof to a block of flats. The RP is the freeholder and the flats are occupied by tenants and leaseholders. The works were carried out over a year ago but we have not yet received the invoice from our contractor for the work they carried out. Can we still recover the costs of the works from the residents via service charges?
A: The first point to check is whether the residents of the block are required to pay a variable service charge and that these works fall within the service charge provision in their leases or tenancy agreements. Assuming that they do, then you need to make sure that you make demands for payment from the residents within 18 months of the costs being incurred. This is because s.20b of the Landlord and Tenant Act 1985 provides that “If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred”. Therefore, there is an 18 month limit for Landlord’s to send out service charge demands from when the cost which those service charges relate to have been incurred. If a demand for payment is not sent out within 18 months of the cost arising then the landlord will lose the right to re-charge those costs to the residents.
The question of when the costs have actually been incurred was considered in OM Property Management Ltd v Burr. In that case the Court of Appeal found that “Costs” were not “incurred”, for the purposes of the Landlord and Tenant Act 1985 s.20B, simply by the provision of services or carrying out of work. Instead costs were said to have been incurred when demand for payment was submitted by the supplier or service provider. In fact the Court of Appeal went on to comment that it might even be as late as when payment was made by the Landlord to the contractor.
Therefore, the Registered Provider appears to still be well within time for making demands for payment in respect of the works that have been carried out to the roof and the start of the 18 month time limit will not begin until the contractor submits their invoices for the work. However, it should be remembered that, under s.21B, a resident can withhold payment of a service charge if demands are not accompanied by a Summary of the Rights and Obligations in the requisite prescribed form. Therefore, it is important that demands for payment of service charges comply with this.
For more information, please contact Neil Lawlor.