One of the most important protections available to residential leaseholders is found in Section 20B of the Landlord and Tenant Act 1985. Commonly known as the “18-month rule”, it prevents landlords and managing agents from recovering historic service charge costs unless they notify leaseholders within a specified period.

What Does Section 20B Say?

In simple terms, Section 20B provides that a leaseholder is not liable to pay a service charge if:

• • The cost was incurred more than 18 months before the service charge demand was issued; and
  • The leaseholder was not notified in writing within that 18-month period that the cost had been incurred and that they would be expected to contribute towards it.

The purpose of the legislation is to prevent leaseholders from receiving unexpected bills for expenditure that may have arisen several years earlier.

Why Does It Matter?

Service charge accounting can take time, particularly where annual accounts are being prepared, audited or reviewed. However, Parliament recognised that it would be unfair for leaseholders to face significant demands long after the relevant work had been carried out.

Section 20B therefore encourages landlords and managing agents to:

• Account for expenditure promptly;
• Issue service charge demands without unreasonable delay; and
• Keep leaseholders informed about costs being incurred.

When Is a Cost “Incurred”?

This is often the key issue in disputes.

Generally, a cost is considered incurred when the landlord becomes legally liable to pay it, rather than when the invoice is actually paid. This means the 18-month clock usually starts running from the date the landlord’s obligation to pay arises under the relevant contract or invoice.

The Landlord’s right of recovery beyond 18 months

Section 20B contains an important exception. Even if the final service charge demand has not been issued within 18 months, the landlord may still recover the cost if it has served a written notice within that period informing leaseholders:

1. That the costs have been incurred; and
2. That they will subsequently be required to contribute through the service charge.

These notices are commonly referred to as Section 20B notices.

The notice does not necessarily need to state the precise amount that will eventually be demanded, but it must clearly inform leaseholders that costs have been incurred and that a contribution will be required.

Unfortunately, we are seeing an increasing number of Section 20B notices being issued simply because some managing agents have fallen significantly behind with their service charge accounting. In many cases this is the result of insufficient resources being dedicated to the accounting function.

Given the continuing trend of consolidation within the property management sector, with larger firms regularly acquiring smaller operators, there is a real risk that this issue will become more common before it improves. The disruption that can accompany acquisitions and portfolio transfers often places additional pressure on accounting teams and can lead to further delays in the preparation of service charge accounts.

For the avoidance of doubt, Common Ground is not for sale, nor are we actively acquiring smaller managing agents, so our clients need not worry about us contributing to the problem. 😊

Common Examples

Recoverable

A managing agent receives a roofing contractor’s invoice in January 2025. Before July 2026, the landlord either:

• Demands the service charge; or
• Serves a valid Section 20B notice.

The cost is likely to remain recoverable.

Potentially Irrecoverable

A contractor’s invoice is incurred in January 2025, but no demand and no Section 20B notice is served until October 2026.

In these circumstances, the leaseholder may have a strong argument that the cost is barred by Section 20B and cannot be recovered through the service charge.

Does Section 20B Apply to All Service Charges?

Section 20B applies to variable service charges that fall within the service charge provisions of the Landlord and Tenant Act 1985. It is most commonly encountered in residential leasehold blocks where costs are apportioned between leaseholders. Given that fixed services chargers are extremely rare, it applies to the vast majority of service charges.

Practical Advice for Leaseholders

If you receive a substantial historic service charge demand:

• Check when the underlying costs were incurred.
• Ask whether any Section 20B notice was served.
• Ask the landlord or managing agent for evidence of the relevant invoices and dates.
• You can also serve the landlord or managing agent with a section 22 and/or section 23 notice (landlord and tenants act 1985) which compels both managing agent and/or landlord to allow the requesting leaseholder(s) access to the original records that make up the accounts. You can then verify for yourselves if any invoices breach the 18 month rule.
• Consider obtaining independent advice if the demand relates to costs that appear to be more than 18 months old.

Key Takeaway

Section 20B is a powerful consumer protection. Unless leaseholders are notified within 18 months that costs have been incurred and will be recovered through the service charge, those costs may become irrecoverable. For both leaseholders and managing agents, understanding and complying with the 18-month rule is essential to the effective management of residential service charges.

Unfortunately, we see too many managing agents and landlords using section 20B as a safety net for a lack of timely accounting. The only time restriction would be the Limitation Act 1980 which deems that a service charge debt is generally recoverable for up to 6 years from the date the cause of action accrued.

That said, If a landlord served a Section 20B notice and then failed to issue a balancing charge for many years without explanation, a tribunal may scrutinise the demand carefully. While Section 20B may have been complied with, excessive delay can create evidential and reasonableness issues.