Landlord and tenant – Service charges – Consultation requirements – Appellant lessees appealing against decision of First-tier Tribunal concerning reasonableness and payability of service charges demanded by respondent landlord – Whether absence of prejudice to appellants relevant consideration – Whether charges for running of respondent as limited company within lessees’ covenants in lease – Appeal allowed
The respondent landlord was the freehold owner of Carillon House, 18 Eversfield Road, Eastbourne, a large house converted into seven flats, each let on a 125-year lease from 28 November 1989. The leases were in similar or identical terms and contained service charge provisions. The appellants were the leaseholders of three of the flats. The lessees of the four other flats were shareholders in the landlord but the appellants were not.
In November 2017, the respondent’s managing agents sent to all seven leaseholders a notice setting out its intention to carry out external redecoration and repairs. It commenced the consultation procedure required by section 20 of the Landlord and Tenant Act 1985. When the work was carried out, the lessees were each required to pay £5,342.53 towards the total cost of £36,517.61.
The appellants applied to the First-tier Tribunal (FTT) to determine the reasonableness and payability of service charges in 2018 and 2019, disputing the sums demanded for the external work and relating to the costs incurred by the managing agent in managing the respondent itself as a limited company. The application alleged breaches of the statutory consultation procedure: the respondent had failed to obtain a quotation from the second appellant’s nominee contractor (AREL) at stage 2 of the process, and therefore failed to give a correct notice of estimates at stage 3 in accordance with para 4 of part 2 of schedule 4 to the Service Charges (Consultation Requirements) (England) Regulations 2003. The FTT concluded that the costs were reasonably incurred and were payable by the lessees.
The appellants appealed, contending that, as the respondent had failed to comply with the section 20 consultation requirements, they were liable to pay only £250 each. Further, the cost of running the respondent as a limited company was not recoverable as a service charge under the terms of the lease.
Held: The appeal was allowed.
(1) Sections 19 to 20ZA of the 1985 Act were directed towards ensuring that tenants of flats were not required to pay for unnecessary services or services which were provided to a defective standard and to pay more than they should for services which were necessary and provided to an acceptable standard. Section 20 imposed a limit on the charges that could be demanded of tenants in respect of “qualifying works” unless the landlord undertook a consultation process. Regulation 7 of the 2003 Regulations defined “qualifying works” as works that resulted in the charge to a tenant being more than £250. Section 20 provided that that was the maximum that could be demanded unless the consultation requirements were complied with.
The schedules to the Regulations set out the relevant consultation requirements in different circumstances. The provisions relevant to the present appeal were in part 2 of schedule 4. At stage 1, notice had to be given to each tenant and any tenants’ association, describing the works, or saying where and when a description might be inspected, stating the reasons for the works, specifying where and when observations and nominations for possible contractors should be sent, allowing at least 30 days (para 1). The landlord had to have regard to those observations (para 3) and had to seek estimates for the works, including from any nominee identified by any tenants or the association (para 4): Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] EGLR 45 considered.
(2) The requirements of the 2003 Regulations were both strict and sequential. There was no room in the clear wording of the provisions for flexibility in their interpretation, and no legal precedent for a flexible interpretation.
While para 3 of part 2 of schedule 4 did not specify a time within which the landlord had to try to obtain an estimate from the tenant’s nominee, it was clear that the nominee’s estimate, if provided, had to be included in the notice of estimates. That meant that a notice of estimates could not be given until the landlord had tried to obtain a quote, and the notice of estimates in this case did not comply with para 4 because the respondent had not complied with para 3. Moreover, the respondent had obtained an estimate from AREL; it was therefore obliged (whatever its own view about the shortcomings of that estimate) to include the quote in a notice of estimates. It was not obliged to accept that quote, and its reasons for refusing to do so might well have included AREL’s assets and its trading record, and the lack of detail in its estimate; but none of those factors entitled the respondent to disregard the consultation process. Whichever way round one looked at the process followed in this case, on the undisputed facts, it did not comply with the consultation requirements.
(3) The FTT had concluded that there was no breach of the consultation requirements, which it could not rationally have done on the evidence before it. Moreover, it did so because it felt the failings were minor and did not prejudice the tenants, which was irrelevant. The FTT appeared to have taken the view that the respondent did its best and that its efforts were good enough, but that finding was not open to it in the context of clear rules which left no scope for any doctrine of substantial compliance.
Therefore, it was not open to the FTT, on the evidence before it, to find that there was no breach of the consultation requirements, and because in making its decision the FTT took into account an irrelevant consideration, namely the absence of prejudice to the tenant. In the absence of an application for dispensation, the appellants were liable to pay £250 each in respect of the external works instead of the £5,342.53 that they had been charged.
(4) Clause 7 of schedule 4 was a covenant to pay fees and disbursements incurred in the management of the property, and not in the management of the landlord company. Accordingly, the appellants were not liable to pay the managing agents’ fees for running the landlord company, and the sums of £180 in 2018 and £340 in 2019 were not payable by the appellants under the terms of the lease.
Stan Gallagher (instructed by Direct Access) appeared for the appellants; James Groves MRICS appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Collingwood and others v Carillon House Eastbourne Ltd
