The Landlord and Tenant Act 1985 makes detailed provision for the regulation of residential service charges payable by long leaseholders. In particular, s.20B(1), 1985 Act provides that a tenant is not liable to pay service charges which were incurred more than 18 months before a demand for payment was served on the tenant. That provision does not apply if, within the same 18 month period, the tenant is notified in writing that the costs have been incurred and that he will subsequently be required under the terms of his lease to contribute to them by payment of a service charge (s.20B(2)). In Brent LBC v Shulem B Association Ltd  1 WLR 3014, the High Court held that the “demand” for the purposes of s.20B(1) had to be a contractually valid demand. That decision was approved – without argument to the contrary – in Skelton v DBS Homes (Kings Hill) Ltd  EWCA Civ 1139.
The appellant was the owner of a large mixed-use development (hotel and residential flats above). The flats were let on long leases and the respondent held c.30 such flats. Under the terms of the leases, the appellant was entitled to recover the costs of providing electricity. It was also entitled, as a separate covenant, to recover costs incurred in providing services to the building as a service charge.
The utility metering was complex and the appellant retained specialist contractors to read the meters and produce individual bills to be recharged to each leaseholder. Between 2008 and 2012, it charged the cost of those contractors as a surcharge on the electricity costs. In previous litigation between the parties, the FTT had upheld that practice, but the Upper Tribunal (on appeal) held that the costs were only recoverable as a service charge and not as a surcharge on the electricity ( UKUT 553 (UT)).
The leaseholder contended that the consequence of that decision was that the earlier demands were contractually invalid (because they had been charged as a surcharge on the electricity and not via the service charge). That meant that there had not been a contractually valid demand for the purposes of s.20B(1). More than 18 months had passed since the costs were incurred. It was common ground that there had never been a s.20B(2) notice. The costs were therefore barred. The FTT found for the leaseholder.
The Upper Tribunal dismissed an appeal. The decision in Shulem B was not an easy one to understand. The purpose of s.20B was to ensure that the leaseholder was not taken by surprise by an unexpected bill for works carried out in earlier years. It was not to create a trap for the unwary or unfortunate landlord who has informed the leaseholder of the costs but has done so under an incorrect charging provision. In a case such as the present, the approach in Shulem B was liable to cause injustice. The difficulty for the landlord was that the decision had been approved in Skelton (albeit without the benefit of argument to the contrary). The Upper Tribunal was therefore bound to give effect to the decision in Skelton and the landlord would need to pursue the point in a higher court.