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The 18-month rule

The 18-month rule

Gilje v Charlegrove Securities Ltd (No2)
[2003] EWHC 1284 (Ch); [2004] 1 All ER 91.

Section 20B of the Landlord and Tenant Act 1985 provides as follows:
    20B(1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred.

    (2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge.
In this case projected budgets were prepared for the accounting periods ending March 1999 and March 2000 and supplied at the beginning of each year. Quarterly demands for interim service charges were subsequently made. However, final accounts for those years were not supplied until the beginning of October 2001. Those accounts showed that the amounts expended for those two years were less than the interim quarterly charge demands for those years. The tenants therefore sought to argue that the landlord was prevented from recovering by way of service charges any expenditure in those accounts because the expenditure was incurred more than 18 months previously.

Held: Section 20B has no effect upon interim payments. It only applies where a further demand is made for a balance.
    .. section 20B of the Act has no application where: (a) payments on account are made to the lessor in respect of service charges; (b) the actual expenditure of the lessor does not exceed the payments on account; and (c) no request by the lessor for any further payment by the tenant needs to be, or is in fact, made. .. it is quite clear that section 20B(1) operates only where the relevant costs were incurred more than 18 months before a demand for payment. (paragraphs 20 and 21)
See also Brennan v St Paul's Court Limited [2010] UKUT 403 (LC) where Gilje was applied.

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