When a cost is regarded as “incurred” is central to understanding the operation of the 18 month rule. The Court of Appeal in OM Property Management v Thomas Burr clarified that a cost is incurred at the earlier of two points: when the landlord receives an invoice for the relevant expense, or when payment is made.
In practical terms, costs will remain recoverable as long as a demand is issued within 18 months from that date. This means the time limit begins when the landlord first becomes liable for the cost, not when the charge is later passed on or formally demanded from leaseholders.
A landlord becomes liable for a cost at the point they are legally obliged to pay it - not when they choose to pass it on.
According to the Court of Appeal:
👉 This will usually be the earlier of:
1. when the landlord receives an invoice, or
2. when the landlord actually makes payment
Section 20B of the 1985 Act
(1) if any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred.
(2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge.