The Service Charge 18 Month Rule Explained

The details of how the service charge 18-month rule works

According to the 18-month rule of section 20b, a leaseholder is liable to pay any service charge if one of the following conditions is met:

1. The demand for payment has been sent to the leaseholder by the landlord within 18 months from the time the cost was incurred.
2. The landlord sends a written notification to the leaseholder about the cost incurred and the amount of the costs within a period of 18 months from the day the cost was incurred. The leaseholder will then be liable to pay the service charge amount at a later date.

If you are unsure about how these rules apply to you, it is advisable to speak to a services charge accountant, if you are not in touch with one try to find a service charge accounting firm.

Video: The Service Charge 18-Month Rule Explained

According to the 18-month rule of section 20B, a leaseholder is liable to pay any Service Charge under two conditions. Watch this video to learn more about Service Charge and the 18-month rule.

When is a cost incurred?

According to the rules, a cost is incurred whenever a landlord pays for the liable cost or receives a demand to make the payment for the liable cost – whichever option may come first.

What qualifies as a notice for payment of service charges?

1. According to section 20B, the notice can include the demand for payment on account for liable service charges that will be incurred in the future. It may also include the notice to pay for the costs that have already been incurred.
2. If a service charge demand notice does not fulfil the terms of the contract agreed between the leaseholder and landlord, then the notice does not qualify as a notice for payment.
3. Notice for service charge payment which is against the lease does not qualify as a demand for payment.
4. If the notice includes a request for a contribution to the reserve fund, then it will not qualify as a notice for payment of the liable service charges.

What do you need to know about a section 20B notice?

A section 20B is a notice that is sent out by the landlords. It is usually sent when they are unable to send a demand for payment to the leaseholders within a period of 18 months, from the time the cost was incurred. However, it should be clear that in case a landlord sends a section 20B notice within a period of 18 months from the time the cost was incurred. They will then be allowed to send a demand of payments for the costs to the leaseholders, even after the 18 months have passed.

If you are facing any difficulties and are delayed with preparing and sending your service charge accounts to demand the deficit for the year. It is advisable to consult your service charge accountants to help you with the section 20b process.

What should a section 20b be comprised of?

The following are the conditions that fulfil the criteria of a section 20B notice:

1. The notice should include the total amount of costs incurred by the landlord for the building or property under lease.
2. The notice should include only the costs that are relevant to the terms of the lease. Any non-chargeable costs for which the leaseholders are not liable, they should not be included in the notice.
3. The notice should clearly state that the landlord plans to charge the portion of the payment as service charges to the leaseholders, as mentioned in the contract.
4. It is important to ensure that the notice must include all the related costs. This includes any management fee the landlord plans to charge in the future. Moreover, the notice will not qualify as a section 20B notice if it fails to list down all of the liable costs.

Clear House Accountants are Specialized, Service Charge Accountants, we have years of experience, a highly trained service charge accounting team and the required service charge accounting skills to be able to help landlords, developers, leaseholders, property management companies, resident management companies etc to prepare, certify, vouch, check service charge accounts, help with major work CAPEX plans, section 21 or section 20b notices and many other service charge related services. Contact us to learn more.