London Borough of Brent v Shulem B Association Ltd

A service-charge demand under a lease must identify a sum payable by reference to expenses actually incurred, although it need not separately state the landlord’s total expenses and the tenant’s proportion. A demand may remain formally valid if the sum claimed exceeds the landlord’s underlying entitlement, with judgment then given for the lesser sum properly due. A demand based on estimated future expenditure, coupled with a later adjustment mechanism, does not satisfy such a clause.

For Landlord and Tenant Act 1985, section 20B(2), written notification must state a figure for costs actually incurred and notify the tenant that a service-charge contribution will subsequently be required. A notification based only on estimated costs is insufficient.

The London Borough of Brent sought to recover service charges from Shulem B Association Ltd under fifteen materially identical leases. The charges related to major works carried out to blocks on a residential estate.

The County Court held that a letter sent by Brent in February 2006 was not a valid contractual demand but was a sufficient notification under section 20B(2) of the Landlord and Tenant Act 1985. Shulem appealed that conclusion. Brent served a respondent’s notice contending that the letter was instead a valid demand under the leases and section 20B(1).

The central issues were whether the letter was a valid demand under the service-charge clause and, if not, whether it was a valid notification under section 20B(2).

1. Appeal allowed. The February 2006 letter was neither a valid demand under clause 2(6) of the leases nor a demand for payment of a service charge under section 20B(1) of the Landlord and Tenant Act 1985. It was also not a valid notification under section 20B(2).
2. Clause 2(6) required a demand to specify the sum payable and to relate to the specified service-charge matters. It entitled the lessor to recover a proportion of expenses actually incurred, or possibly expenses for which the lessor was under a present liability. It did not permit recovery of anticipated future expenditure.
3. The demand need not state separately the amount of the lessor’s expenses and the proportion claimed. Nor was it formally invalid merely because the amount demanded exceeded the lessor’s underlying entitlement. In that event, the court could give judgment for the lesser sum properly due.
4. The February letter nevertheless failed because it expressly based the sum demanded on estimated costs, stated that actual costs had not yet been calculated, and contemplated a later adjustment or refund. It therefore did not demand a due proportion of actual expenses.
5. Section 20B(1) presupposed a valid demand under the relevant contractual provisions. Since the February letter was not contractually valid, it could not constitute a statutory demand under subsection (1).
6. For section 20B(2), the notification had to state a figure for costs actually incurred. It was sufficient if the landlord stated a figure which it was prepared to treat as a limit, even if the eventual costs were lower. The notice also had to say that the tenant would subsequently be required under the lease to contribute by service charge; it need not state the tenant’s precise proportion or resulting charge.
7. The February letter stated estimated rather than actual costs and allowed for recovery of any excess. It therefore failed the first requirement of section 20B(2). Its wording would have satisfied the second requirement on a non-technical reading.

The court declined to determine when the relevant costs were incurred because the building contract was unavailable and the issue was unnecessary to the appeal.

• Central London County Court: Judge Cowell held that the February 2006 letter was not a valid demand under clause 2(6) but was a sufficient notification under section 20B(2), and refused to strike out the claim.
• High Court (Chancery Division): Permission to appeal was granted and the appeal was allowed. The letter was held insufficient under clause 2(6), section 20B(1) and section 20B(2).