An incorrect service charge demand can, as we all know, lead to delays in settlement. Leaseholders can withhold payment and you, as the managing agent, have no grounds for legal proceedings to secure payment.
At Brady Solicitors we typically see two common problems with service charge demands:
Incorrect landlord information. Under Sections 47 and 48 of the Landlord and Tenant Act 1987, service charge demands must include the name and registered address of the landlord. And this address must be in England or Wales.
Rights and obligations missing or incorrect. Section 21B of the Landlord and Tenant Act 1985 states that service charge demands must be accompanied by a Summary of Rights and Obligations and that this document must follow the prescribed format.
So, what can you do if you’ve made a mistake with a service charge demand and are unable to chase payment?
Brady Solicitors’ service charge specialists have identified case law that suggests a valid demand CAN retrospectively correct a previous incorrect demand, meaning all may not be lost. In the case of Lindsey Trading Properties Inc v Dallhold Estates (UK) Pty Ltd the Court of Appeal found that although the service charge demands were not compliant with the Section 48 rule, this did not mean the money could never be recovered. This is also supported in Rogan v Woodfield Building Services Ltd (1995) and Staunton v Taylor (2010).
Following the logic of these cases, it is therefore reasonable to assume that an incorrect service charge demand would not render the service charge unpayable for all time.
What about the 18 month rule for service charge demands?
Property managers (and savvy leaseholders) know that, under Section 20B of the Landlord and Tenant Act 1985, service charge demands have to be made within 18 months of the expense being incurred. So what happens if you are trying to put right an invalid demand dating back two, three or even four years?
Case law suggests that so long as the original service charge demand was made, albeit incorrectly, within 18 months of the expense being incurred, you can correct it in the future with a valid demand without falling foul of Section 20B.
As above however, the service charge will not become payable until the demand is compliant and issued correctly.
So, in essence, an invalid demand does not mean that the service charge cannot be recovered. It does mean however that it is not payable until a subsequent valid demand has been made.
A word of caution
It is far easier, cheaper and quicker to get your service charge demands right in the first place! Check what your lease says, talk to your solicitors (preferably one at Bradys) and ensure your team know how, what and when to make service charge demands.