OM Property Management Ltd v Burr

Factual and Procedural Background

Plaintiff has been the registered leasehold owner of a flat in a development containing a communal leisure centre with a swimming pool supplied by gas since 2006. Defendant, a management company party to Plaintiff's lease, began managing the development in 2001 and was informed by the developer that the gas supply was provided by Company A. Defendant read the gas meter and paid invoices generated by Company A from tenants' payments. In 2007, Defendant was notified by Company B that it had been supplying the gas since 2000 and demanded payment for that period. After negotiations, Company B reduced its charges and Company A reimbursed the amounts wrongly paid. Defendant then demanded Plaintiff’s share of the additional gas charges in 2008. Plaintiff paid under protest and initiated negligence proceedings against Defendant, alleging Defendant’s negligence caused Plaintiff to pay charges that should have been borne by the previous leaseholder. Defendant denied negligence and the case was transferred to the Leasehold Valuation Tribunal (LVT). The LVT made findings regarding the reasonableness of charges and the timing of costs incurred under the Landlord and Tenant Act 1985. Defendant appealed to the Upper Tribunal (Lands Chamber), which allowed the appeal, holding that costs were not incurred when the gas was supplied but when an invoice was presented or payment made. Plaintiff challenged this interpretation, contending it undermined tenant protections under the Act. The matter was ultimately decided by the Master of the Rolls, with agreement from Lord Justices Elias and Patten.

Legal Issues Presented

1. Whether, for the purpose of section 20B of the Landlord and Tenant Act 1985, costs are "incurred" when services (gas supply) are provided or when the landlord/management company receives an invoice or makes payment.
2. The extent of tenant protection under section 20B regarding time limits on demands for service charges.
3. The applicability of negligence claims against the management company in the context of disputed service charge demands.

Arguments of the Parties

Appellant's Arguments (Plaintiff)

• The Upper Tribunal's decision undermines the legislative aim of protecting tenants from stale service charge demands.
• There should be a limit on the time between when services are provided and when tenants can be required to pay; otherwise, tenants face indefinite exposure to old claims.
• The phrase "costs incurred" in section 20B should be interpreted as costs incurred at the time services are provided or supplies made, not when invoiced or paid.
• Parliament intended to protect tenants from unexpected late demands by requiring costs to be considered incurred at the provision of service.

Appellee's Arguments (Defendant / Management Company)

• Costs are only "incurred" for the purposes of section 20B when an invoice is presented or payment is made, not when services are provided.
• There is a distinction between incurring a liability and incurring a cost; a liability arises when services are provided, but a cost is only incurred once it is made concrete by invoicing or payment.
• Section 19(2) of the 1985 Act supports the view that costs must be ascertained (by invoice or payment) before they are incurred, enabling adjustments to service charges.
• The statutory language and structure indicate Parliament’s intent to define "costs incurred" as costs that are ascertainable and payable, not merely liabilities.
• Section 20B(2) provides for exceptions where tenants are notified of costs, which aligns with the interpretation that costs are incurred upon ascertainment, not provision.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by distinguishing between the concepts of liability and costs, emphasizing that costs must be concrete, ascertainable amounts rather than mere liabilities. The statutory language in sections 18, 19, and 20B of the Landlord and Tenant Act 1985 was closely analyzed, particularly the definitions and provisions relating to service charges and relevant costs.

Section 19(2) was pivotal, as it contemplates adjustments to service charges only after costs have been incurred, implying that costs must be known and capable of adjustment, which is not the case at the mere provision of services. The court agreed with the Upper Tribunal’s conclusion that costs are incurred when an invoice is presented or payment is made, rather than when the service or supply is delivered.

The court rejected the argument that this interpretation undermines tenant protection, noting that section 20B(2) allows for notification to tenants and that the statute’s language clearly differentiates between liabilities and costs. The court acknowledged that most modern leases allow for estimated costs, limiting the practical impact of section 20B.

Precedents cited by the parties did not directly resolve the issue but were consistent with the interpretation adopted. The court found no binding authority requiring a different construction and declined to depart from the Upper Tribunal’s reasoned analysis.

Holding and Implications

The court DISMISSED the appeal, affirming the Upper Tribunal’s decision that, for the purposes of section 20B of the Landlord and Tenant Act 1985, costs are incurred when invoiced or paid, not when services are provided.

The direct effect is that tenants are protected from demands for service charges reflecting costs incurred more than 18 months before the demand, counted from the date the costs are invoiced or paid, rather than from the date services were provided. This interpretation clarifies the timing of cost incurrence for service charge demands but does not establish a broader precedent altering the substantive rights of tenants beyond the statutory framework. No negligence claim against the management company was determined by this ruling.