Strengthening leaseholder protections over fees, charges and services: consultation

2.3 A new notice of future service charge demands

61. Under Section 20B of the Landlord and Tenant Act 1985, a landlord must notify leaseholders of service charge costs being incurred or demanded within 18 months of when the costs were incurred. This is intended to ensure timely billing and to avoid disputes over expenditure which has occurred long in the past. Case law has determined that these costs are counted from either when the landlord is billed by the supplier or when they pay the supplier themselves.

62. If landlords miss this 18 month deadline, leaseholders are not liable to pay these costs unless the landlord sends a written notice within this period about the costs and their future responsibility to contribute. Case law has determined that a landlord demand in this context must be both a request for payment of money and be a demand for actual expenses incurred under the provisions of the lease.

63. There is no prescribed format for this notice, which has caused confusion as information provided within notices is not always considered sufficient. Currently, the notice only needs to state the overall cost to the landlord, but it may not necessarily explain how much each individual leaseholder owes, whether they will need to pay, or when the payment will be due.

64. The 2024 Act seeks to provide clarity by requiring landlords to issue a new ‘future demand notice’ to leaseholders where they are required to notify leaseholders of future service charge costs.

65. The 2024 Act gives the Secretary of State and Welsh Ministers powers to specify the form of the notice, the information to be included in it, and the manner in which it must be given to the leaseholder. We propose that this includes:
    1. the estimated amount of costs incurred;
    2. the amount an individual leaseholder is expected to be required to contribute to those cost; and
    3. a date on or before which it is expected that the service charge will be demanded.
66. Once a future demand notice is issued, the Secretary of State and Welsh Ministers have powers to limit the amount that landlords may charge as well as the time limit by when a demand for payment must be made. Landlords may extend the expected demand date under specified circumstances.

67. For multi-year programmes of works, we expect landlords to issue a future demand notice for each new set of works. For existing works, where there is a further increase in costs incurred after the initial future demand notice, we also expect landlords to issue a further future demand notice to cover these additional costs incurred before the expiry of the existing demand notice and within 18 months of those costs being incurred. This is subject to any limitations imposed by the Secretary of State and Welsh Ministers.

68. It is the intention of this proposed approach to provide greater certainty and transparency for leaseholders while also holding landlords more accountable and ensuring that costs are billed in a timely manner, or otherwise appropriate communication is provided to leaseholders.

i) Form and manner of notice to leaseholders

69. It is important that landlords provide leaseholders with clear, timely and accessible information about future costs. Annex C sets out the detail of the proposed standard future demand notice. The form should be sent out to leaseholders in accordance with the lease. However, as indicated in section 3.6, we do recognise the growing use of digital communication, and we will keep under review a shift toward electronic delivery in future.

ii) Grounds (reasons) for extending the estimated demand date

70. There may be justifiable reasons why landlords might sometimes need to delay asking leaseholders for payment beyond the expected demand date, even if the total costs stay the same. This might be because of disputes over the quality of works or delays to finishing them. There may also be instances where an overspend relates to a major works project which is subject to either a reasonableness or dispensation dispute at the relevant tribunal which has not yet been determined. The Secretary of State and Welsh Ministers have the power to prescribe valid reasons for changing the demand date and we propose the following grounds:
    1. Delays to major works; and
    2. Disputes which delay the invoice of the final bill.
71. We welcome views on the appropriateness of these grounds and if other grounds should be considered.