What constitutes a notice that service charge costs have been incurred?
Skelton v DBS Homes (Kings Hill) Ltd  addressed the service charges incurred by a freeholder; under the lease, the tenant’s liability to pay arose when the freeholder delivered a summary of the estimated costs and a demand. The freeholder was able to recover additional sums where necessary if sums held on account were insufficient. The landlord’s demands were not supplied with details of estimated costs for three years, but an estimate for all three years was supplied later.
Under the Landlord and Tenant Act 1985, tenants are not liable to pay service charges incurred more than 18 months before a demand is served, although this does not apply if, in that 18-month period, the tenant is notified that the costs have been incurred and is required to contribute towards them. In this case, the tenant claimed that he was not liable to pay the service charges as he had not received the required notices.
The Court of Appeal held in favour of the tenant, and concluded that the demands made were not valid as they did not contain with them an estimate for the works to be undertaken.
The landlord simply advising the tenant that it will be making a demand is not sufficient to satisfy the legislation.
Advice and action for landlords
As ever, it is essential for landlords and management companies to follow completely the procedures set out in the lease, particularly when dealing with recovery of service charge and works monies which can be substantial.
The tenant succeeded in its claim in the Skelton case because the court was able to identify a failure on the part of the landlord to comply with the terms of the lease.
The judgment should treated with caution because the landlord, which was in liquidation by the time of the hearing, was not represented and did not appear. Further, on the face of it, the decision is at odds with previous case law and the Court’s reasoning was unclear in places. However, where lease terms relating to the mechanism for demanding service charges are unclear, we recommend that landlords consult solicitors so that landlords can ensure compliance.
As ever, it is essential for landlords and management companies to follow completely the procedures set out in the lease.