Freeholders, managing agents and residents’ management companies often ask if there is a time limit on recovering service charge arrears… make way for “the 18-month rule”!
Brady Solicitors’ Jack Turner explains this all-important 18-month rule, and what you need to do to ensure you and your clients do not fall foul of it.
What is the 18-month rule for service charges?
We must look to legislation for this definition, specifically s.20B (1) LTA 1985, where it provides that a service charge demand must be issued within 18 months of the costs making up the service charge being incurred.
If you fail to demand payment within 18 months, then you cannot recover those costs incurred.
Under s.20(B) of the same Act, if you have notified the leaseholder in writing within 18 months that those costs (an estimate will suffice) have been incurred and that the leaseholder would be required to contribute towards said costs, the 18-month rule does not apply, and you can recover those costs in full (subject to the usual statutory limitation provisions).
At what point have you incurred the costs?
Costs are incurred on the date you are invoiced for those costs or when you make payment of those costs, whichever happens first. (In the case of OP Property Management v Thomas Burr  EWCA Civ 479 the Court of Appeal held that cost becomes incurred on the presentation of an invoice or when it is paid.)
So, what should you do?
In order to avoid falling foul of the 18-month rule, freeholders, RMCs and their managing agents should firstly try to demand costs from the leaseholders within the 18-month period from when they were incurred/paid.
If that is not possible, ensure that you notify the leaseholders (in writing) within the 18-month period that those costs have been incurred and that they will be required to contribute. Not only does this make good legal sense, maintaining open communications with leaseholders is good practice and can play a key part in securing prompt payment when you do issue the service charge demand.