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:

• The demand for payment has been sent to the leaseholder by the landlord within 18 months from the time the cost was incurred.
• 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.

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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 the 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 comes first.

What qualifies as a notice for payment of service charges?

The notice for payment of service charges may include the payment demand for liable service charges that have already been incurred or are expected to be incurred in the future. If the demand notice does not fulfil the lease terms or is contrary to the lease, or includes a contribution request to the reserve funds, then the notice will not be considered a notice for payment. 

• Service Charge Demands – Get them right

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

Section 20B is a notice sent by the landlords if they failed to send a demand for payment to the lessor within 18 months after the cost was incurred. The landlords are allowed to send a demand for payment even after 18 months have passed, provided they have already sent a Section 20B notice within the 18 months. 

What should a section 20b be comprised of?

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

• The notice should include the total amount of costs incurred by the landlord for the building or property under lease.
• 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 should not be included in the notice.
• 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.
• It is important to ensure that the notice includes all the related costs. This includes any management fee the landlord plans to charge in the future, so it can be qualified as a section 20B notice.

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.

Additional Resources

• Service Charge – Residential and Commercial Leasehold
• Contractor Expense: 10 Key Costs You should Be Claiming