Statutory Limitation – What it means and how it will impact service charge recovery
The law on limitation is set out in the Limitation Act 1980 (“LA 1980”). The LA 1980 sets out time limits during which claims must be brought. There are different limitation periods for different types of claims.
The point of statutory limitation is to prevent claims being brought too long after the cause of action. It would be unmanageable and impractical to have no cap on the time frame for bringing a claim.
When considering service charge debt, there are two limitation periods to be aware of. Which period applies is determined by how the service charges are reserved in the lease.
Section 19 of the LA 1980 sets down the limitation period of 6 years for claims that seek to “recover rent arrears or damages in respect of arrears of rent.” The 6-year period starts running from the date that the charge in question fell due.
Section 8 of the LA 1980 deals with debts due under a “specialty” and states that “an action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.”
A specialty is a contract executed as a deed. Leases which contain obligations for leaseholders to pay service charges are deeds and therefore fall within the definition of “specialty.”
If the lease governing payment of the service charge debt reserves the service charges as rent (or “further rent”) then the 6-year limitation period will apply. However, if the lease does not reserve the outstanding service charge as rent, then the landlord will enjoy the benefit of the longer, 12-year limitation period.
If the limitation period relating to the service charge debt has passed when a debt claim is issued, then the leaseholder will have a complete defence to a claim attempting to recover the unpaid charges.
In this instance the service charge debt will be unrecoverable, causing significant cash flow and management issues for the block.
It is for this reason that timely recovery of service charges is so important.
Limitation places a cap on the period during which a claim for unpaid service charges can be brought and the applicable limitation period could be either 6 or 12 years from the date that the service charge fell due.
If action is not taken to recover the unpaid service charge before expiry of the applicable limitation period, then a landlord risks the leaseholder raising the issue of limitation and securing a complete defence to the claim.
Swift recovery of service charge arrears is therefore essential to avoid problematic financial holes in service charge accounts.
Contact Jessica to discuss this further.
