Landlord and tenant – Service charges – Building Safety Act 2022 – Appellant landlord applying for dispensation from consultation requirements for remedial work – FTT granting application subject to costs condition – Appellant appealing – Whether FTT wrong to impose condition – Whether recovery of costs by service charge prevented by paragraph 9 of schedule 8 to 2022 Act – Appeal allowed
The appellant was the freehold owner of a mixed-use building, containing 32 residential flats let on long leases, at Hippersley Point, 4 Tilson Bright Square, Felixstowe Road, Abbey Wood, London.
The appellant applied for dispensation from the consultation requirements, in respect of remediation works required to the external façade of the building and in respect of interim fire safety measures. The respondents were the long leaseholders of the flats in the building.
The First-tier Tribunal decided that dispensation from the consultation requirements should be granted on an unconditional basis. It also decided that an order should be made, pursuant to section 20C of the Landlord and Tenant Act 1985, preventing the appellant from recovering any of its costs of the dispensation application from the respondents by the service charge provisions in their leases.
In response to the application for a review, the FTT reversed its decision to make the section 20C order but made it a condition of the grant of dispensation that the appellant should not be entitled to recover its costs of the dispensation application from the respondents.
The appellant appealed the decision to impose the costs condition which gave rise to a further issue whether the costs were, in any event, covered by paragraph 9 of schedule 8 to the Building Safety Act 2022, so that no service charge was payable in respect of such costs by any leaseholder whose lease was a qualifying lease, within the meaning of section 119 of the 2022 Act.
Held: The appeal was allowed.
(1) It was not open to the FTT to impose the costs condition without giving the parties the opportunity to be heard on the question of whether the costs condition should be imposed. Therefore, the FTT made a procedural error by making the decision on its own initiative without hearing submissions from the parties.
The parties were only given the opportunity to make an application to set aside the costs condition after the FTT had decided that the condition should be imposed. That procedural error was sufficiently serious to vitiate the exercise by the FTT of its discretion and constituted an error of law. As such, the exercise of its discretion, in deciding to impose the costs condition, could not stand.
(2) In any event, the decision to impose the costs condition could not be upheld on substantive grounds. The reasons given by the FTT for imposing the costs condition were fundamentally flawed. It was impossible on the findings of fact made by the FTT to identify any justification for imposing the costs condition beyond a principle that, in any dispensation application, it was unfair to the tenants to allow the recovery of the costs of the application from the tenants because the grant of dispensation was a forbearance by the tribunal. However, there was no principle or rule that the imposition of a costs condition was appropriate in all applications for dispensation.
In the absence of such principle or rule, the reasons given by the FTT for imposing the costs condition were wrong, as a matter of law, and could not stand. The decision of the FTT to impose the costs condition fell outside the legitimate scope of its discretion, for the procedural and substantive reasons identified, and was wrong in law: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 2 EGLR 45; [2013] EGILR 41 WLR 854 applied. Aster Communities v Chapman [2020] UKUT 177 (LC); [2020] PLSCS 123 considered.
(3) The 2022 Act provided important protection for certain leaseholders against the costs of remediation of some building defects. Paragraph 9 was restricted in its effect to a service charge payable under a qualifying lease as defined in section 119. At least some of the flats were held on qualifying leases, so that paragraph 9, if it applied at all to the costs, was capable of affecting the ability of the appellant to recover the costs by the service charge.
The effect of paragraph 9 was that, as from 28 June 2022, no service charge was payable in respect of qualifying services, regardless of when the costs of those qualifying services were incurred, and regardless of when the relevant service charge actually became due for payment. There was no exclusion for service charges in respect of qualifying services which became payable prior to that date.
Therefore, the ability of the appellant to recover the costs by the service charge was affected by paragraph 9. The costs were not recoverable by the service charge from those of the respondents who held qualifying leases within the meaning of section 119.
(4) The costs of a dispensation application were, as a matter of language, capable of falling within paragraph 9. By the time the FTT came to exercise its discretion as to what (if any) conditions to impose on the grant of dispensation in the reviewed decision, paragraph 9 was in force.
Thus, paragraph 9 fell to be taken into account in the exercise of the discretion because it affected the ability of the appellant to recover the costs from those of the respondents who held qualifying leases, regardless of the costs condition. Although no one raised paragraph 9 before the FTT, the omission of its effect constituted a reason for saying that the reviewed decision was incomplete. The failure of the FTT to take that factor into account was an error of law in the exercise of its discretion.
(5) By virtue of section 12 of the Tribunals, Courts and Enforcement Act 2007, the Upper Tribunal might set aside the decision of the FTT to impose the costs condition if it found that the decision involved an error on a point of law.
There was no basis for remitting the case to the FTT. The UT would remake the reviewed decision to take effect as a decision to grant dispensation on an unconditional basis, with the costs condition excised. The reviewed decision should also take effect as a decision that, by virtue of paragraph 9, the costs were not recoverable by the service charge from those of the respondents who held qualifying leases within section 119.
Simon Allison (instructed by JB Leitch Solicitors) appeared for the appellant; The respondents did not appear and were not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point
