Can we still charge leaseholders for costs we paid more than a year ago?
Last checked against the sources on
Only if you act in time. If a cost was incurred more than 18 months before the demand is served, the leaseholder doesn’t have to pay the part of the service charge that reflects it, unless within 18 months of the cost being incurred you told them in writing that the cost had been incurred and that they would later be required to contribute under their lease.
What the rule says
Section 20B(1) of the Landlord and Tenant Act 1985: if any of the relevant costs in a service charge “were incurred more than 18 months before a demand for payment of the service charge is served on the tenant”, the tenant isn’t liable to pay the part of the charge that reflects those costs. So the clock runs from the date the cost was incurred to the date the demand is served on the leaseholder, not to the date the accounts were finished.
The way round it
Section 20B(2) says the limit doesn’t apply if, within 18 months of the date the cost was 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”. The notice has to say both things. It doesn’t have to be a demand and it doesn’t have to give the exact share.
Where this catches resident-run companies
- A large bill (a roof, insurance, a one-off repair) paid from the company’s own money, with the demand left until the year-end accounts are done.
- A late invoice from a contractor, or costs found when the books are caught up.
- A change of directors, where nobody realises what hasn’t been billed.
Related limits worth knowing
- Costs count as relevant costs whether they’re incurred in the period the charge is for or in an earlier or later period (section 18(3)(b)).
- Reasonableness: costs only count to the extent they were reasonably incurred, and for work or services only if of a reasonable standard (section 19(1)).
- Where a charge is payable before the costs are incurred, no more than a reasonable amount is payable, and once the costs are known “any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise” (section 19(2)). That is the basis for the year-end balancing charge or credit.
We haven’t found a source on how an 18-month period counts for costs paid in instalments or which date a cost counts as “incurred” for a contract that pays on completion. If the amount is large, take advice before relying on a date.
This is general information, not legal advice.
How Tiny Freeholder helps
Tiny Freeholder tracks costs that haven’t been demanded or notified in writing and warns you as the 18-month point approaches, showing roughly how much is at risk and from which date. It doesn’t decide for you which date a particular cost was incurred.