Service Charges: Assessing recoverability of charges where certification is made over 18 months after costs incurred (Parmar v 127 Ladbroke Grove Ltd – 2022)
Where proper certification of service charges is made more than 18 months after the costs to which the charges relate were incurred, are service charges recoverable by the landlord?
In Parmar v 127 Ladbroke Grove Ltd , a house in London had been converted into flats. The appellant held a long lease of one of the flats. The leaseholder covenanted to pay service charges under the lease, amounts of which were determined by 3 steps:
- Payment of an amount in advance each quarter day if required by the landlord, to be a fair and reasonable interim payment;
- Determination of the amount of service charge by certification, which apportioned the sum payable by each leaseholder for the service charge year; and
- Provision by the landlord of an account of the sums payable and crediting payments made on account (if any). The leaseholder was then to pay a final sum due when this account was provided.
The leaseholders acquired the building’s freehold and the appellant later stopped making interim service charge payments. The respondent, being the landlord company, brought proceedings to claim interim service charges and interest. Judgment in the County Court was made in the landlord company’s favour and the appellant paid the sums due.
The respondent company did not make any more interim service charge demands of the appellant, nor serve the final account on the appellant, once these proceedings had commenced in order to protect its right to forfeit. A demand was made after determination for the full sum, including the amount already paid following the County Court judgment which was not credited.
The service charge certificates were withdrawn and reissued, but did not state amounts payable or each leaseholder’s apportionment. The appellant brought proceedings in the First-tier Tribunal for determination of all service charges, questioning in particular the issue of the certificates and relying also on the statutory time limit for service charge demands of 18 months contained at s.20B of the Landlord and Tenant Act 1985. Service charges must be demanded, or the leaseholder must be notified that costs have been incurred and will later be demanded, within 18 months of the date the costs to which they relate were incurred.
The FTT found that service charges were reasonable and payable, subject to the landlord company providing proper certification as required by the lease. The leaseholder argued that certification would be made over 18 months after the date costs were incurred, and appealed to the Upper Tribunal.
The Upper Tribunal allowed the appeal, finding that documentation presented to the FTT had not been sufficient to evidence notification of costs incurred within the statutory 18 month period which would enable the landlord to recover such costs through the service charge. The FTT’s judgment on this point was set aside.
The UT also considered whether sums paid on account by the leaseholder should be repaid as a result of certification being out of time. S.20B does not provide for repayment of sums, how such sums should be calculated or create a cap on sums payable, but merely limits the time period during which sums can be demanded and recovered.
The UT found that the County Court judgment prevented the FTT from making an order for repayment, and concluded that no reimbursement would be paid to the leaseholder.
Advice and action for landlords
Landlords and property managers are advised to note this decision, ensuring that all service charge demands are made both in accordance with the lease terms in each case and, in any event, always within 18 months of costs being incurred.
Where final certification may take longer, leaseholders must be notified in writing of costs having been incurred and that these will later be recoverable. Although a straightforward practice for most landlords, where works may be prolonged (for example, as a result of works delays owing to the pandemic) it is strongly advised – and good practice – that dates are monitored carefully and leaseholders kept informed of costs and works.
The Upper Tribunal allowed the appeal, finding that documentation had not been sufficient to evidence notification of costs incurred within the statutory 18 month period which would enable the landlord to recover costs through the service charge.