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If there is an overspend on the service charge budget after the accounts have been reconciled at the end of the year, then leaseholder may find themselves having to pay an additional amount known as a balancing charge because more was spent than budgeted for, and creating a shortfall.This balancing charge will show as a deficit figure and the request for the shortfall will be collected from either a reserve fund or demanded in the form of Notice under s20b of the Landlord and Tenant Act 1985 (limitation of service charges: time limit on making demands).

On the other hand, if there is a surplus of contributions over what was actually spent this can a) be transferred into a reserve fund (if there is one), b) credited back to each leaseholders service charge account if this is dictated by the lease or c) carried forward to the next accounting year, as service charge accounts are worked out by the total charged to leaseholders throughout a budget year, not what has actually been received.

In short the reason for the issuing of s20b notices is to ensure that service charge payers do not receive unexpected bills way after the costs were incurred, allowing them to budget to meet those costs when they are demanded. A ‘s20b notice’ will only state the total amount of the costs incurred, (not individual liabilities), but it will inform leaseholders that they will be required to pay a share of those costs at a later date (on account) as a service charge. These costs must be ‘relevant costs’ and listed at the time of writing the notice because any non-chargeable areas where a leaseholder does not have to make contribution fall outside of the legislation. It is also important to note that any s20b notice which excludes certain costs which a landlord, (or agent on their behalf), intends to recharge at a later date, will also not meet the s20b requirement.  So these too must be listed.

A payment to a reserve fund is not applicable under this piece of legislation.

CASE LAW

Case law has established at the Court of Appeal in the case of OM Property Management Ltd v Burr – [2013] EWCA Civ 479 rules that costs are not “incurred” for the purposes of Section 20b of the Landlord and Tenant Act 1985 on the mere provision of a service or supply, but only when the liability has crystallised (whether on payment or presentation of an invoice). So the 18 month period runs from the date a Landlord receives an invoice rather than the date the services or works are supplied.

 

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