Landlord and tenant – Service charge – Consultation – Applicant local authority carrying out works to replace communal central heating boilers serving estate – Applicants failing to consult leaseholders of flats on estate as required by section 20 of Landlord and Tenant Act 1985 and Service Charges (Consultation Requirements) (England) Regulations 2003 – Whether appropriate to grant dispensation from consultation requirements – Appropriate conditions to attach to dispensation – Application allowed
The applicant local authority landlords owned an estate in London NW6 containing 184 flats, of which most were let to periodic tenants but one-quarter were held by leaseholders on long leases under which a variable service charge was payable. Between December 2011 and April 2012, the applicants carried out works under a qualifying long term agreement to replace damaged and malfunctioning communal central heating boilers serving the estate, at a total cost of nearly £247,000. The applicants did not consult the leaseholders about those works as they were required to do in accordance with section 20 of the Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements) (England) Regulations 2003. In September 2014, they applied for dispensation from the consultation requirements pursuant to section 20ZA of the 1985 Act.
The leaseholders of 11 flats objected to the application. They contended that they had been prejudiced by the failure to consult, since they had been denied the opportunity to suggest a cheaper option of installing individual systems within each flat rather than replacing the communal boilers. The argued that dispensation should therefore be refused and their service charge contribution to the cost of the works capped at £250 pursuant to section 20(1) of the 1985 Act. The applicants contended that the only relevant kind of prejudice was prejudice of a financial nature and that the leaseholders had failed to prove financial prejudice since there was no evidence that the option chosen by the applicants was not the cheapest one.
Held: The applicant was allowed in part.
(1) Since the purpose of the consultation requirements was to ensure that leaseholders were protected from paying for inappropriate works or paying more than would be appropriate, the only consideration was the extent, if any, to which the leaseholders were prejudiced in either respect by the landlord’s failure to comply with the requirements. Once the leaseholders had shown a credible case for prejudice, it was for the landlord to rebut it. The tribunal could impose conditions on a grant of dispensation, including a condition that the landlord paid the reasonable costs which the tenants had incurred in connection with the landlord’s application. Accordingly, leaseholders who sought to establish prejudice might be entitled to the advantage of representation by a lawyer and/or a surveyor paid for by the landlord: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 1 WLR 854; [2013] 2 EGLR 45; [2013] 1 EGILR 4 applied.
The difficulty facing leaseholders was that, In order to obtain the full advantages of professional representation, they would probably need to be represented well in advance of the hearing of the application, so that they could obtain the disclosure and require the evidence that they needed in order to establish that they had been prejudiced. Many leaseholders were unaware of their entitlement until later on in the process and, even if they were aware of their potential right to have their costs paid by the landlord, most lawyers and surveyors would be reluctant to accept instructions without an assurance that they would be paid. Unless the leaseholders themselves had the necessary means, it was unlikely that such assurances would be provided until it was too late, since it could not simply be assumed that the leaseholders’ costs would be awarded. It followed that the availability to leaseholders of legal or other professional representation for the preparation or conduct of a landlord’s application for dispensation was not as great an advantage as it might appear and in many cases would be illusory.
(2) The leaseholders were not restricted to showing prejudice of a financial nature and were entitled to rely on prejudice of other kinds. To conclude otherwise would be to fetter the very wide discretion conferred by section 20ZA(1), which enabled the tribunal to dispense with compliance if satisfied that it was reasonable to dispense with the requirements. The leaseholders in the instant case might therefore have argued that individual heating systems would have non-financial advantages, such as the ability to have the heating on or off at different times from the communal boilers, or to have their system repaired quickly. However, the tribunal could not speculate on that point since the only specific evidence of prejudice which the leaseholders had actually adduced was of financial prejudice. In those circumstances, the tribunal was restricted by the evidence in the instant case to consideration of financial prejudice.
(3) The more egregious the landlord’s failure, the more readily would a tribunal accept that the leaseholders had suffered prejudice: Daejan applied. The applicants’ failure to comply with any of the consultation regulations was egregious. It was good practice, even in an emergency, to comply with the regulations to the extent that that was possible so that the leaseholders had the opportunity to make observations to which the landlord had to have regard. In the instant case, there was uncontradicted evidence that temporary boilers could have maintained the heating and hot water supply for a considerable period of time, and at relatively modest cost, while proper consultation was carried out. On the evidence, it would therefore have been possible for the applicants to consult the leaseholders fully on their proposal, without putting in jeopardy the supply of heating and hot water. The applicants’ delay in applying for dispensation was also relevant to the egregiousness of their non-compliance. It had affected the presentation of the case by both sides and made the leaseholders’ task more difficult thereby increasing the prejudice that they had suffered.
(4) The tribunal was entitled, indeed obliged, to view the leaseholders’ arguments sympathetically: Daejan applied. The leaseholders’ argument in favour of the installation of individual systems was a reasonable point which, if adopted by the applicants, would have been likely to reduce the costs of the works or result in some other advantage. However, it was not appropriate simply to assume that the applicants would have adopted that option. The applicants were a social landlord of a mixed tenure estate, in which many of the periodic tenants were likely to have different means and needs from the leaseholders. It could not be said that the applicants would be acting unreasonably if they decided that, because of their responsibility to vulnerable tenants, they should incur the significantly greater initial cost of new communal boilers. Without knowing which option the applicants would choose, it was not possible to be certain of the extent of the prejudice, if any, to the leaseholders. Those uncertainties meant that both extremes of either refusing to dispense, or of dispensing only on the condition that the applicants paid the leaseholders’ legal costs, would be inappropriate. The most reasonable solution was to grant dispensation subject to a condition limiting the costs to which the leaseholders were required to contribute in respect of the works, in addition to the agreed condition that the applicants pay the leaseholders’ legal costs. The leaseholders’ contributions were accordingly reduced by a sum representing a rough estimate of the cost of non-urgent work, with the result that they were required to contribute to the cost of the urgent works, including repairs to leaking pipes and the installation of temporary boilers, in a sum not to exceed £60,000, divisible between the leaseholders in the proportions specified in their leases.
Michael Walsh (instructed by the legal department of Camden London Borough Council) appeared for the applicant; Robert Bowker (instructed by direct access) appeared for two of the respondent leaseholders who objected to the application; two other respondent leaseholders appeared in person to object.
Sally Dobson, barrister
