Service charges are to be treated as rent arrears for the purposes of s19 of the Limitation Act 1980 (Escalus Properties v Robinson  QB 231, CA), and hence neither they nor rent arrears are recoverable if the arrears are more than six years old when a claim is issued.
Landlords (as creditors) may however limit the application of this principle by appropriating a tenant's payments to the oldest debt. And the landlord's right of appropriation can normally be exercised 'up to the very last moment' such as when the landlord's rent officer is giving evidence at court or in a tribunal. There are two exceptions to this rule.
First, if the landlord appropriates a payment to a particular debt and communicates this fact to the debtor then it cannot subsequently change its election.
Secondly, the tenant (as debtor) may, when making a payment, appropriate the payment to a particular debt (eg by saying 'this is payment of service charges for the year 2014/15') and if the landlord creditor accepts the payment it must then apply it in the manner directed by the tenant.
Rent statements don't show how payments were appropriated
The issue that arose in this case turned on the first exception because the tenant argued, and the First Tier Tribunal accepted, that his rent account, which was attached to the landlord's particulars of claim, had shown arrears dating back to December 2005. From these rent accounts, that were in substance identical to those typically used by landlords, the Tribunal concluded 'that the landlord has in its accounts always applied payments made by [the tenant] to the most recent service charges outstanding at the time payment was made'.
The Upper Tribunal allowed the landlord's appeal after accepting that a typical rent or service charge account merely 'shows what the debt is at each time a debit or credit is entered on the account'. But what it 'does not show, and does not purport to show, ... is how any payments were appropriated.' So the Upper Tribunal concluded that the landlord had not indicated by its rent statements that it had appropriated a payment to any particular debt.
Furthermore, the landlord was entitled to make an election during the hearing that all payments had been appropriated to the tenant's oldest debt. By this election the evidence showed that there were no arrears six years before the claim was issued.
Jon Holbrook who acted for the appellant landlord was instructed by Mark Oakley of Judge & Priestley.
For the Upper Tribunal's judgment click here.