Superior landlords and the 18 month rule

Section 20B(1) of the Landlord and Tenant Act 1985 imposes a time limit on the making of demands for service charges.  Essentially, a landlord has 18 months from incurring a cost to recover it as a service charge from its leaseholder.  This is the so called 18 month rule.

But what happens where a cost is incurred by a superior landlord in providing services, which is then passed down a chain of intermediate landlords before, ultimately, being paid by the occupational leaseholder?  Do successive 18 month time limits apply to each demand made in the chain?  Or does the 18 month rule impose a single 18 month time limit from the date on which the cost was first incurred by the superior landlord?

This was the quandary before the Upper Tribunal (Lands Chamber) in the matter of Westmark (Lettings) Limited v Peddle and Others [2017] UKUT 0449 (LC).

 

Background

Queen Square is described as a mixed modern development of offices, shops and residential units including 29 leasehold flats on the upper 5 floors.  The leasehold structure under which the Queen Square development is held is described as being “complicated” and there are, I understand, 5 layers of ownership, beginning with Bristol City Council as the freeholder, and ending with the occupational sub-underlessees of the 29 flats.

Although the freeholder (Bristol City Council) provides no services, the head lessee (Epic (Colmore Road) Trust) is required to insure the development and keep it in good and substantial repair and condition.  It is entitled to pass on its costs through a service charge as a term of the underlease with Westmark (Lettings) Ltd.  In turn, Westmark recoups those costs from the management company (Queen Square (Bristol) Management Company Limited) through the service charge in the concurrent underlease.  The management company is then entitled to pass on those costs to the leaseholders through the service charge in the occupational leases.  There is, therefore, a chain of liability starting at the headlessee, and ending with each occupational leaseholder.

When does the 18 month time limit “bite”?

The leaseholders argued that the 18 month time limit began to run when relevant costs were incurred by the head lessee.  The First Tier Tribunal agreed.

The intermediate landlords took a different view.  They argued that where relevant costs are passed down a chain of title they are “incurred” for the purposes of Section 20B(1) at different times by different landlords.  In other words, at each stage in the chain a cost was incurred by a landlord to which a separate period of 18 months applied: each landlord has their own 18 month time limit.

One consequence of this is that the ultimate paying party (i.e. the residential leaseholder) might receive a demand for a contribution towards the costs of works which had been carried out many years earlier.

 

Decision of the Upper Tribunal

The Upper Tribunal looked very carefully at the protections afforded to leaseholders by Sections 18 to 30 of the Landlord and Tenant Act 1985.  They considered the relevant sections, and looked at the language used to try and help them understand whether the 18 month rule would “bite” just once, or whether it would “bite” at each link in the chain.

The Upper Tribunal accepted that in contractual terms each of the landlords in the chain had a distinct liability of its own.  In each case the liability was owed to a different person, and was payable at a different time and in different amounts.

At each level in the contractual claim, a cost was incurred by each landlord in turn when it received a demand for payment of its liability.

The payments made up the chain were also “relevant costs” in their own right.

The preferred view of the Upper Tribunal is that a new relevant cost arises at each stage.  Therefore, the 18 month rule has a renewed effect at each level in the chain of liabilities.

It was recognised by the Upper Tribunal that the ultimate paying party (i.e. the occupational leaseholder) was at risk of receiving demands for payments in respect of work carried out years earlier by the superior landlord.

 

Commentary

This is welcome guidance on the operation of the 18 month rule in the not uncommon scenario where there’s a chain of landlords and liabilities.

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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