Skelton v DBS Homes (Kings Hill) Ltd

The 18-month limitation in section 20B of the Landlord and Tenant Act 1985 applies to service charges for estimated future costs as well as costs already incurred. The tenant must receive a valid demand under the lease. A notice that fails contractual preconditions does not satisfy the provision. Where a demand becomes valid only when a later estimate is served, that later date governs the limitation period. A statutory mechanism for correcting missing information does not retrospectively cure contractual invalidity. Any resulting windfall to the tenant is a consequence of the landlord’s failure to comply with the lease.

Mr Mark Skelton, a long leaseholder, challenged liability for service charges after demands were served without the estimates required by the lease. The First-tier Tribunal rejected his argument that the contractual machinery had not been satisfied. The Upper Tribunal (Lands Chamber) upheld that conclusion, holding that the demands became valid when the estimates were served but that section 20B did not apply to on-account demands for future costs: [2015] UKUT 379 (LC). The appeal concerned whether section 20B of the Landlord and Tenant Act 1985 applied and whether later service of the estimates retrospectively validated the demands.

Appeal allowed. Lady Justice Arden gave the leading judgment, with Lord Justice Richards agreeing.

1. The lease made liability for service charges dependent on the landlord preparing estimates, serving them on the tenant and providing a statement of the charge payable. The Upper Tribunal’s conclusion that a demand became valid when the estimate was served was not challenged.
2. The statutory definition of service charge in section 18 includes amounts payable for costs incurred or to be incurred. Section 20B therefore applies to on-account demands relating to estimated future costs.
3. For section 20B purposes, the tenant must have received a valid demand for payment. Information that the landlord proposes to make a demand is insufficient. A demand that does not comply with the contractual service-charge machinery is not valid.
4. Gilje v Charlegrove Securities [2004] 1 All ER 91 did not justify the Upper Tribunal’s conclusion. That case concerned demands made before costs were incurred, where expenditure did not exceed the estimates and no further demand was served. It did not govern a case in which the demand became valid only after the relevant costs had been incurred.
5. The reasoning in London Borough of Brent v Shulem B Association Ltd [2011] EWHC 1663 supported the requirement for a valid contractual demand.
6. Johnson v County Bideford [2012] UKUT 457 (Lands Chamber) concerned statutory validity under sections 47(1) and 47(2). It did not establish that later service of an estimate retrospectively validated a demand that was contractually defective when served.
7. The possibility of a windfall to the tenant did not justify a different construction. It resulted from the landlord’s failure to comply with the lease.

1. Court of Appeal (Civil Division): allowed the appeal.
2. Upper Tribunal (Lands Chamber): rejected the leaseholder’s argument that no service charges were payable and held that section 20B of the Landlord and Tenant Act 1985 did not apply to on-account demands for future costs: [2015] UKUT 379 (LC).
3. First-tier Tribunal: rejected the argument that the landlord’s failure to serve estimates with the demands meant that liability to pay service charges had not arisen.