We took over a block last year and the previous agent left the 2023/24 accounts unfinished. There is a deficit we have never billed, and some contractor invoices from early 2024. Someone mentioned an "18-month rule". Have we lost the right to recover this money, and what should we be doing now?
Section 20B of the Landlord and Tenant Act 1985 generally prevents a residential leaseholder from being required to pay service charge costs that were incurred more than 18 months before a demand for those costs was served on them. The costs may still be recoverable if, within that 18-month period, the leaseholder was notified in writing that the costs had been incurred and that they would subsequently be required under the lease to contribute to them through the service charge. This is commonly called the 18-month rule, and the protective notification is commonly called a section 20B(2) notice. It is a limit on when costs can be demanded, not a rule that wipes out service charge debts after 18 months.
Section 20B of the Landlord and Tenant Act 1985 puts a time limit on demanding service charge costs after those costs have been incurred. It does not put a time limit on collecting a service charge debt that has already been validly demanded. Keeping those two ideas apart is the single most useful thing a director or agent can do with this topic.
The rule applies to variable service charges within the meaning of section 18 of the 1985 Act. It applies to landlords, RTM companies and resident management companies alike where they are the party demanding the service charge.
Suppose a contractor cost falling within the service charge is incurred in January 2025.
This is illustrative only. Working out exactly when a cost was "incurred", and whether a particular document was a valid demand, can each require legal analysis on the facts.
Section 20B(1) provides, in substance, that where relevant costs were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, the tenant is not liable to pay so much of the service charge as reflects those costs.
Two points follow:
Section 20B(1) does not apply where, within the 18-month period, the tenant was notified in writing that the relevant costs had been incurred, and that the tenant would subsequently be required under the terms of the lease to contribute to them by the payment of a service charge.
Both elements matter. A notification that mentions expenditure but says nothing about the leaseholder being required to contribute through the service charge is unlikely to do the job, and vice versa.
Note what the subsection does *not* say. A section 20B(2) notification is not itself a demand for payment. It does not create a liability to pay, it does not shorten or extend the lease timetable, and it does not remove any of the other statutory requirements that apply when the demand is eventually made.
This is where most disputes start, and there is no single universal answer.
What the relevant date is *not*, as a matter of course:
The authorities approach the question by reference to when the landlord became liable for, or paid, the relevant cost. In *OM Property Management Ltd v Burr* [2013] EWCA Civ 479 the Court of Appeal considered when costs are incurred for these purposes, in the context of expenditure that was billed long after the supply. The practical position taken from the case law is that costs are generally treated as incurred on presentation of an invoice or on payment, depending on the circumstances, rather than when the underlying service or work was provided. It is a question of fact and law in each case, and directors should not assume a single fixed rule such as "always the invoice date".
For an RTM company or RMC the safe working approach is to identify, for each significant item of expenditure, the earliest date on which the company could arguably be said to have incurred the cost, and to work back from that.
There is no prescribed statutory form, and no template can guarantee compliance. What matters is whether the document communicates, in substance, the two things the subsection requires.
In *Brent London Borough Council v Shulem B Association Ltd* [2011] EWHC 1663 (Ch) the High Court considered what a section 20B(2) notification must do. The decision is the usual starting point for the proposition that the notification has to identify the costs that have been incurred with sufficient clarity, rather than simply refer in general terms to works or to a future charge, and that a document written for another purpose will not necessarily satisfy the subsection.
It is important to separate two different figures:
The subsection is directed at the first of these. The leaseholder is being told that costs have been incurred and that a contribution will be required under the lease. The final apportioned figure is usually not known at that stage, which is precisely why the subsection exists. Where the incurred costs themselves are not yet fully quantified, the case law does not require perfection, but a vague reference to unquantified future expenditure is a poor substitute for a clear statement of what has been incurred. Where the position is finely balanced, take advice before relying on the notification.
Not automatically, and this is the practical lesson of *West India Quay*. A demand issued under the wrong clause of the lease, or which fails to satisfy the requirements for a valid service charge demand, may not stop the section 20B(1) clock.
Nor should it be assumed that a defective demand converts itself into a valid section 20B(2) notification. It might, on its wording, happen to tell the leaseholder that costs have been incurred and that a service charge contribution will be required. Equally, it might not. In *Cookson v Assethold Ltd* [2020] UKUT 115 (LC) the Upper Tribunal had to consider whether a demand had been made at all and what the effect of section 20B was. The two questions - was there a valid demand, and was there a compliant notification - have to be asked separately and answered on the documents actually sent.
Most leases require estimated or on-account payments during the year, followed by a balancing calculation. Section 20B still matters here.
*Skelton v DBS Homes (Kings Hill) Ltd* [2017] EWCA Civ 1139 concerned the validity of demands for on-account service charges where the machinery in the lease had not been followed. The general point for directors is that a payment on account is only demandable if the lease machinery has been operated properly; if it has not, the company may find itself relying on later demands for actual expenditure, at which point the section 20B timetable becomes very relevant.
Take a straightforward example.
Delaying the accounts does not necessarily postpone the section 20B clock, because the clock runs from when the underlying costs were incurred. If the balancing demand cannot be validly issued within 18 months of the relevant costs being incurred, directors should consider whether a compliant section 20B(2) notification is needed to protect the position.
That is not the same as saying every deficit requires a section 20B notice. Where accounts are produced promptly and the balancing demand goes out well inside the period, no notification is needed. The notification is a safeguard for the cases where it will not.
No.
This is probably the most common misunderstanding of the rule. Section 20B is about the time allowed to demand relevant costs after they were incurred. It does not say that a service charge that was validly demanded becomes unrecoverable because 18 months have passed since the demand was served. Recovery of a demanded debt raises separate questions, including limitation, the terms of the lease and the appropriate enforcement route - which we deal with in our answer on recovering service charge arrears.
Put simply: section 20B governs the demand, not the debt.
The numbering causes endless confusion.
A block can comply perfectly with section 20 consultation and still lose the ability to recover the cost of the works under section 20B, and the reverse is equally possible.
Yes. RTM companies and RMCs administering variable service charges are in the same position as professional landlords and managing agents where these provisions apply. Volunteer directors are not given extra time.
A change of managing agent does not reset the statutory clock. The costs were incurred when they were incurred, whoever was managing at the time. Where old unreconciled expenditure surfaces, directors should establish:
Day-to-day RTM company management and disciplined service charge management are what keep this from becoming a problem in the first place.
An incoming agent frequently inherits some combination of unfinished accounts, unbilled deficits, historic contractor invoices, missing balancing charges, incomplete accounting records and section 20B notices nobody can locate.
The right response is to review before demanding. Issuing historic demands without checking their contractual and statutory basis can turn an accounting problem into a tribunal application. Our managing agent handover checklist sets out the records that should be requested, and our answer on the documents an outgoing agent must hand over covers what to insist on.
Where a leaseholder pays their immediate landlord for services provided by a superior landlord, the point at which costs are treated as incurred for section 20B purposes can differ at each level. *Westmark (Lettings) Ltd v Peddle* [2017] UKUT 449 (LC) addressed whether the 18-month limit is repeated for each intermediate landlord. It is a technical area; if your structure involves a head lease and an intermediate landlord, take advice rather than assuming the position is the same as a simple two-party arrangement.
We take over blocks with unfinished accounts fairly regularly. The first job is always the same: work out what was incurred, when, what was demanded, and what is genuinely recoverable - before anything is billed. If you are looking at a historic deficit and are not sure where you stand, we are happy to look at it.
The 18-month rule rewards prompt accounting and punishes drift. Most section 20B problems are not legal problems at the outset; they are bookkeeping delays that become legal problems eighteen months later.
Thinking the 18 months runs from the end of the accounting year
The clock runs from when the relevant costs were incurred. The year end is an accounting date, not the statutory trigger.
Waiting for certified accounts before thinking about section 20B
Accounting and certification delays do not stop the statutory clock. If the demand will be late, the notification has to be considered before the accounts are finished, not after.
Assuming an invalid demand counts as a section 20B(2) notice
A demand under the wrong provision of the lease may fail as a demand, and it will only work as a notification if it in fact communicates what the subsection requires.
Confusing section 20 with section 20B
Section 20 is about consultation on qualifying works and long-term agreements. Section 20B is about the time limit for demanding costs. They are separate provisions.
Assuming all service charge debts disappear after 18 months
Section 20B is not a general limitation period. A validly demanded service charge does not evaporate because 18 months have passed since the demand.
Assuming a change of managing agent restarts the clock
The costs were incurred when they were incurred. A handover does not give the new agent a fresh 18 months.
Most questions on this topic are management questions rather than legal ones, and the two are worth separating. A managing agent can tell you how something works day to day and what it will cost. A solicitor tells you what your rights are and how a Tribunal is likely to view them.
East Valley Properties provides management expertise, not legal advice. Where a matter turns on the wording of your lease or on formal proceedings, we will say so and work alongside your solicitor.
The official material behind this guide. We summarise it in plain English rather than reproducing it.
The 18-month limitation on demands and the written notification exception in subsection (2).
Defines the variable service charges to which section 20B applies.
The separate reasonableness limitation on relevant costs.
The tribunal's jurisdiction to determine whether a service charge is payable.
Court of Appeal, 21 July 2021. Considers section 20B(1) where the sum was never the subject of a contractually valid demand as a service charge.
High Court. What a section 20B(2) notification must communicate.
Court of Appeal, 27 July 2017. Validity of on-account service charge demands where the lease machinery was not operated.
Court of Appeal. When relevant costs are treated as incurred for section 20B purposes.
Upper Tribunal (Lands Chamber). Whether the 18-month limit is repeated for each intermediate landlord.
Upper Tribunal (Lands Chamber). Whether a demand had been made and the effect of section 20B.
Solicitors' commentary. Secondary source only.
Solicitors' commentary on West India Quay. Secondary source only.
Solicitors' commentary. Secondary source only.
Clear budgets, designated client accounts and year-end accounts leaseholders can actually follow. We can review your current arrangement at no cost.
Answered by Romain Maillard - Director, East Valley Properties
Romain manages residential blocks and estates for RTM companies, residents' management companies, share of freehold developments and freeholders across East London and Essex.
Published
This answer has been anonymised. Personal details, addresses and company names have been removed. Guidance is general and does not replace advice from a solicitor or surveyor on your specific block. East Valley Properties is a managing agent, not a firm of solicitors or legal advisers.
Whether you're an RTM Director, RMC Director, Freeholder or Leaseholder, our experienced block management team is here to help.
If your question could help other property owners, we may publish an anonymised version of the answer in our Knowledge Centre.
Book a free consultation with East Valley Properties to discuss your building, service charges, compliance or managing agent requirements.