OM Property Management Ltd v Burr

For the purposes of service charge demands, costs are not “incurred” under sections 18, 19 and 20B of the Landlord and Tenant Act 1985 merely when services or supplies are provided. A liability must crystallise into an ascertained or ascertainable cost.

This ordinarily occurs when the supplier presents an invoice or other demand, or when the landlord or management company makes payment. The court left open which of those events is decisive. The statutory purpose of protecting tenants from stale claims does not justify treating the earlier provision of services or supplies as the relevant date.

A management company received a substantial retrospective invoice for gas supplied to a communal swimming pool between 2000 and 2007. It included the resulting expenditure in the service charge accounts and demanded the appellant leaseholder’s proportion.

The Leasehold Valuation Tribunal held that the costs had been incurred when the gas was supplied and were therefore subject to the 18-month limit in section 20B of the Landlord and Tenant Act 1985. The Upper Tribunal (Lands Chamber) allowed the management company’s appeal, holding that the costs were not incurred before the supplier presented its invoice.

The leaseholder appealed. The central issue was when costs are “incurred” for the purposes of section 20B: when services or supplies are provided, or only when the resulting liability crystallises through an invoice or payment.

1. The appeal was dismissed unanimously. The Upper Tribunal had correctly held that the gas costs were not incurred merely when the gas was supplied. The supplier presented its invoice in November 2007, and the resulting service charge demand fell within the statutory 18-month period.

2. Ordinary language distinguishes a liability to pay from the incurring of a cost. A liability must crystallise before it becomes a cost. That distinction is reflected in section 20B(1) of the Landlord and Tenant Act 1985, which separately refers to the tenant’s liability to pay and to the costs incurred. Section 18(2) likewise defines relevant costs as costs or estimated costs incurred or to be incurred, rather than as liabilities for costs.

3. Section 19(2) strongly supported this construction. It distinguishes the regime applying before relevant costs are incurred from the adjustments required after incurrence. An adjustment by repayment, reduction or subsequent charge can be made only when the amount is ascertained or ascertainable, usually following an invoice or other demand. The mere provision of services or supplies does not produce an amount capable of such adjustment.

4. Accordingly, costs are not incurred within sections 18, 19 and 20B upon the mere provision of services or supplies. It was unnecessary to decide whether incurrence occurs upon presentation of an invoice or upon payment. That question may depend on the circumstances, including the existence of a genuine dispute or delay in payment.

5. Section 20B protects tenants against stale demands, but that general purpose does not determine the point at which costs are incurred. The protection afforded is the protection expressed in the statutory language. The policy discussion in Gilje v Charlgrove Securities [2004] 1 All ER 91 did not resolve the precise issue before the court.

1. Court of Appeal (Civil Division): Dismissed the leaseholder’s appeal and affirmed the Upper Tribunal’s construction of when costs are incurred under section 20B of the Landlord and Tenant Act 1985.

2. Upper Tribunal (Lands Chamber): Allowed the management company’s appeal. It held that the gas costs were not incurred when the gas was supplied and had been demanded within the statutory time limit.

3. Leasehold Valuation Tribunal: Held that the costs were incurred when the gas was supplied and that the recoverability issue therefore fell to be determined under section 20B. The proceedings had been transferred from the county court, where the leaseholder had alleged negligence.