Gilje & Ors v Charlegrove Securities Ltd

Section 20B of the Landlord and Tenant Act 1985 does not prevent recovery of service-charge expenditure where tenants have paid sums on account, the actual expenditure does not exceed those sums, and no further demand is required or made. Payments on account are themselves payments of a service charge for the purposes of section 20B. The later account and certificate are not a demand for payment where they reveal no balance due. Section 20B addresses later demands for previously incurred costs, particularly where tenants lacked adequate warning, and does not impose an 18-month bar on expenditure already covered by advance payments. A tenant may instead seek an account where the landlord culpably delays preparing the final account.

The claimants were long-lease tenants of flats in a building managed by the defendant landlord and its agent. Their leases required quarterly payments on account of service charges and a balancing payment if the landlord’s expenditure exceeded those payments.

The landlord’s accounts for two years were supplied more than 18 months after the relevant expenditure had been incurred. The interim payments exceeded the actual expenditure, so no further sum was demanded. The claimants contended that section 20B of the Landlord and Tenant Act 1985 barred recovery of the expenditure until the final accounts were issued. Master Price rejected that argument on a preliminary issue. The central question on appeal was whether the accounts and certificates constituted a demand for payment and whether section 20B applied to expenditure already covered by payments on account.

1. Appeal dismissed. Master Price’s conclusion was plainly right.
2. Section 20B(1) operates only where relevant costs were incurred more than 18 months before a demand for payment of the service charge. The accounts and certificates required by the leases were not, in substance or form, demands for payment because the interim sums exceeded the actual expenditure and there was no balance to demand.
3. The quarterly sums were payments of a service charge within section 18 of the Landlord and Tenant Act 1985. They were amounts payable in respect of services, works, insurance or management costs. They did not change character when the final accounts and certificates were prepared.
4. The leases expressly discharged the tenants’ liability by payment on account. Only where the landlord’s expenditure exceeded those payments did the leases require a demand for the balance within 21 days. The certificate and account related to the landlord’s expenditure generally and did not themselves demand payment from any particular tenant.
5. Sections 19(1) and 19(2) supported this construction. The Act contemplated payment on account and provided a mechanism for adjustment where such payments were unreasonable. Applying section 20B to expenditure already covered by advance payments would fit uncomfortably with that statutory scheme and would amount to a significant limitation not placed within section 19(1).
6. The apparent policy of section 20B was to protect tenants from unexpected bills for expenditure of which they had not been sufficiently warned. It did not prevent recovery of expenditure for which adequate prior provision had been made. A tenant faced with culpable delay in preparing a final account could apply to the court for an account, with costs consequences where appropriate.

High Court (Chancery Division): dismissed the appeal from Master Price’s order on the preliminary issue.