Landlord and tenant – Service charges – Consultation requirements – Dispensation – First-tier Tribunal refusing application for dispensation from statutory requirements to consult before carrying out major works – Appellant landlord appealing – Whether works required to be urgent for grant of dispensation – Whether tenants prejudiced by failure to consult – Whether appellant entitled to carry out works during registration gap – Appeal allowed
The property at 2 The Waterloo, Cirencester, was a mixed-use block comprising four self-contained commercial units on the ground floor and six residential units on the first and second floors. In December 2020, the appellant purchased the freehold of the property. He became the registered proprietor in January 2022.
The respondents held three long leases of the residential parts of the property. The leases contained standard provisions for the payment of a service charge calculated by reference to the landlord’s expenditure on the property. When the appellant bought the property, the commercial units were not let and it obtained vacant possession of those units.
Shortly after its purchase the appellant obtained an expert’s report which found cracks through mortar joints and stones, and clear indications that the movement in the property was likely to be ongoing and required “urgent restraint”.
The appellant commenced works to stabilise the structure of the property and to carry out a range of works identified as necessary in the expert reports. Work was substantially completed in September 2021.
The appellant did not comply with the consultation requirements of section 20 of the Landlord and Tenant Act 1985. The First-tier Tribunal refused its application under section 20ZA of the Act for a dispensation from the statutory requirement to consult its tenants prior to carrying out major works. The appellant appealed.
Held: The appeal was allowed.
(1) Section 20 of the 1985 Act, together with the Service Charges (Consultation Requirements) (England) Regulations 2003, created a statutory procedure for tenants to be consulted before major works were undertaken which they would have to pay for in the service charge.
Section 20ZA gave the FTT a discretion to dispense with the statutory requirements. Given that the purpose of the consultation requirements was to ensure that the tenants were protected from paying for inappropriate works or paying more than would be appropriate, when entertaining an application under section 20ZA(1), the tribunal had to focus on the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the requirements: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 2 EGLR 45; [2013] EGILR 4 considered.
Consultation requirements were not an end in themselves, and failure to consult was not something to be punished. On many occasions the urgency of the work would have been such that the landlord acted in the tenants’ best interests, in going ahead without waiting to go through the consultation process: see Holding and Management (Solitaire) Ltd v Leaseholders of Sovereign View [2023] UKUT 174 (LC); [2023] EGLR 34.
The sort of prejudice that would have a bearing on dispensation was where the tenants could show that they would have been able to suggest a better or cheaper way of doing the work: see Marshall v Northumberland & Durham Property Trust Ltd [2022] UKUT 92 (LC); [2022] PLSCS 56.
(2) There was almost invariably a gap (the registration gap) between the completion of a purchase of land by the execution and delivery of a transfer, and its registration at HM Land Registry; until the purchaser’s title was registered, the legal estate did not pass to the purchaser.
During the gap the vendor held the legal title on a bare trust for the purchaser. As such, the vendor had no power to make decisions about the property and had to act at the direction of the purchaser: section 24 of the Land Registration Act 2002.
In the present case, the appellant had vacant possession of the commercial units on the ground floor which it was entitled to enter at will; so far as the long leasehold property was concerned, it was able to exercise whatever rights to enter were reserved to it, as landlord, by the leases. At completion, it took on all the landlord’s obligations to maintain the property and took the benefit of the tenant’s covenants to pay the service charge. So, the appellant’s right to take possession of the property and carry out the work could not be in doubt.
Equally there was no doubt about the appellant’s standing to apply for a dispensation under section 20ZA of the 1985 Act prior to registration of its title. The owner of the property, albeit in equity and not yet at law, was the landlord.
(3) The idea that if the works were not urgent the appellant had not established the “basic right” to a dispensation was a misconception. There was no requirement of urgency in section 20ZA. Nor was there a “basic right” to a dispensation; it was a matter of discretion; but to impose a precondition that was not in the statute exceeded the bounds of that discretion. Whether there was prejudice to the tenant was normally the sole question for the FTT. It was clearly wrong to hold that lack of urgency could be a reason to justify the denial of a dispensation: Marshall and Lambeth London Borough Council v Kelly [2022] UKUT 290 (LC); [2022] PLSCS 187 considered.
The absence of a requirement of urgency did not make dispensation merely a rubber stamp available on payment of a small fee. A conscious decision to go ahead without consultation and then seek dispensation was a high-risk strategy. The penalty for not consulting, in terms of the restriction of the right to recover service charges, was severe and it was not necessary for the FTT to create further hurdles for the landlord to surmount.
(4) The FTT found as a fact that there was no prejudice to the tenant arising from the failure to follow the consultation process in full or at the proper time. Therefore, it was impossible to see any reason why dispensation was not given. The FTT was wrong to regard urgency as a precondition to dispensation and, considering the lack of prejudice to the respondents, it should have granted one.
In the light of the FTT’s unappealed finding that the respondents were not prejudiced by the incomplete consultation, the appellant would be granted a dispensation from the section 20 consultation requirements in respect of the 2021 works and the later removal of asbestos.
Charles Auld and Kayleigh Bloomfield (instructed by Hughes Paddison Solicitors, of Cheltenham) appeared for the appellant; The respondent did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of RM Residential Ltd v Westacre Estates Ltd and another
