A guide for resident directors
The 18-month rule: section 20B and service charge costs
In short
A leaseholder does not have to pay a service charge for a cost incurred more than 18 months before the demand was served, unless within those 18 months they were told in writing that the cost had been incurred and that they would have to contribute to it. That is section 20B of the Landlord and Tenant Act 1985.
| The law | Landlord and Tenant Act 1985, section 20B |
|---|---|
| Time limit | 18 months from when the cost was incurred to when the demand is served |
| The way out | A written notice within the 18 months: a section 20B(2) notice |
| When a cost is incurred | Usually when the supplier’s invoice is presented or paid |
| Most at risk | Costs left to a late year-end, and balancing charges |
What the rule says
If any of the costs in a service charge were incurred more than 18 months before the demand is served, the leaseholder is not liable to pay the part of the charge that reflects those costs (section 20B(1)).
That does not apply if, within 18 months of the cost being incurred, the leaseholder was told in writing that the cost had been incurred and that they would later be required to contribute to it under the lease (section 20B(2)).
When a cost is "incurred"
The Court of Appeal held in Burr v OM Property Management (2013) that a cost is incurred when the supplier’s invoice is presented or paid, not when the service was provided. Electricity used over a year but billed late is incurred when the bill arrives or is paid.
When it bites
- Year-end accounts finished late, with a balancing charge for costs paid early in the year.
- A cost never recharged at all, such as a missed insurance premium, found when the books are tidied up.
- Costs paid from a float or the reserve and recharged long afterwards.
Where leaseholders paid on account and the actual costs did not exceed those payments, the rule does not usually arise: in Gilje v Charlegrove Securities (2003) the costs had already been met from payments on account.
How to stay inside it
- Issue the year-end accounts and any balancing charge within 18 months of the earliest cost in them.
- If that is not possible, send every leaseholder a section 20B(2) notice in time: which costs have been incurred, how much, and that they will be required to contribute under the lease. A vague warning that costs may exceed the budget may not be enough.
- Keep proof of when and how each demand and notice was served.
Questions
What is the 18-month rule for service charges?
Under section 20B of the Landlord and Tenant Act 1985, a cost incurred more than 18 months before the demand is served cannot be recovered, unless the leaseholder was told in writing within the 18 months that it had been incurred and that they would have to contribute.
Does the 18-month rule apply to ground rent?
No. Section 20B is about service charges. Ground rent is not payable until a notice under section 166 of the Commonhold and Leasehold Reform Act 2002 has been given.
What should a section 20B notice say?
That specific costs have been incurred, how much they are, and that the leaseholder will be required to contribute to them under the lease. Send it to every leaseholder within 18 months of the cost.
Sources
- Landlord and Tenant Act 1985, section 20B
- Burr v OM Property Management Ltd [2013] EWCA Civ 479
- Gilje v Charlegrove Securities Ltd [2003] EWHC 1284 (Ch)
This guide explains the law in general terms. It is not legal advice: for a decision that matters to your block, take advice on your own leases and circumstances.