Landlord and tenant – Service charges – Failure to consult – Appellant landlord seeking to recover through service charges cost of repair – The appellant carried out a consultation under section 20 of the 1985 Act in relation to a package of major works concerning the flats and maintenance works – First-tier Tribunal (FTT) granting appellant dispensation from consultation obligations subject to conditions – Upper Tribunal dismissing appeal challenging conditions – Appellant appealing – Whether conditions properly imposed – Appeal dismissed
The appellant owned a development of 160 flats in five blocks at Kingsway Gardens, Andover, 114 of which were let on long leases. The appellant carried out a consultation under section 20 of the 1985 Act in relation to a package of major works to be carried out. An issue arose whether on-account demands of service charge made by the appellant, mainly in relation to the replacement of asphalt on the balconies of the main blocks, were unreasonable.
The appellant applied to the First-tier Tribunal (FTT) under section 27A of the Landlord and Tenant Act 1985 to determine the service charge payable by the lessees. The respondent lessees contended that the proposed works included elements which had either not reasonably been incurred or were not of a reasonable standard, thereby contravening section 19 of the 1985 Act. The FTT held that the appellant had failed to include the replacement of balcony asphalt in the section 20 consultation and that the full replacement of all balcony asphalt which had carried out was unnecessary.
Having completed the works, the appellant applied under section 20ZA(1) for dispensation of the consultation requirements. The FTT held that if the appellant had complied with the consultation requirements then one of the lessees, would have acted differently as she would have obtained a surveyor’s report. Therefore, relevant prejudice was established. In the circumstances the FTT granted the landlord dispensation on terms that would remove possible prejudice to the respondents, including conditions that the appellant paid the respondents’ reasonable costs of the dispensation application and of obtaining an expert report. The Upper Tribunal dismissed the appellant’s appeal against that decision: [2020] UKUT 177 (LC); [2020] PLSCS 123. The appellant appealed.
Held: The appeal was dismissed.
(1) Section 20(2) of the 1985 Act provided that the “relevant contributions of tenants” to the service charge was “the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement”. Under section 20(7) and regulation 6 of the Service Charges (Consultation Requirements) (England) Regulations 2003, a tenant’s relevant contribution was limited to £250. A landlord who had not complied with the consultation requirements could thus recover no more than £250. However, by section 20ZA(1) a tribunal might dispense with “all or any of the consultation requirements” if satisfied that it was reasonable to do so. Section 20ZA(4) provided that the consultation requirements should be prescribed by statutory instrument. The consultation requirements relevant to the present case were in part 2 of schedule 4 to the 2003 Regulations.
If a landlord failed to comply with the requirements in connection with qualifying works, it had to get a dispensation under section 20(1)(b) if it was to recover service charges in respect of those works in a sum greater than the statutory minimum. In so far as the tenants would suffer relevant prejudice as a result of the landlord’s failure, the tribunal should, at least in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice. The sole question when considering whether to dispense with consultation requirements was whether there was real prejudice to the tenants flowing from the landlord’s breach of the requirements. The FTT could require a landlord to comply with certain terms as a condition to the grant of dispensation provided “any such terms are appropriate in their nature and their effect”: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] EGLR 45 applied.
The only disadvantage of which tenants could legitimately complain was one which they would not have suffered if the requirements had been fully complied with, but which they would suffer if an unconditional dispensation were granted. While the legal burden of proof would throughout be on the landlord, the factual burden of identifying some relevant prejudice that they would or might have suffered would be on the tenants, since the tenants’ complaint would normally be that they were not given the requisite opportunity to make representations about proposed works to the landlord.
(2) The consultation process for which the 2003 Regulations provided was a group process in which a landlord had to supply every tenant with notice of their intention to carry out works and a statement including, among other things, a summary of observations made by other tenants. More than that, a landlord sought dispensation against tenants generally. If all tenants suffered prejudice because a defect in the consultation process meant that one of their number did not persuade the landlord to limit the scope or cost of works in some respect, there was no reason why the FTT should be unable to make dispensation conditional on every tenant being compensated. The reduction in the scope or cost of works would have accrued to the benefit of each of them, and so, if dispensation was to be granted against them all, the totality of the prejudice should be addressed.
(3) In this case, the FTT decided that the respondents had made out a credible case of relevant prejudice, namely that the lessees would be asked to pay for inappropriate works. The failure to refer to the balcony works in the notice of intention gave rise to a credible case of relevant prejudice to every tenant, and the FTT was entitled to take that into account. The fact that the prejudice might be attributable to what one tenant alone would have done did not mean that the FTT was confined to considering prejudice to her. In all the circumstances, the condition requiring the appellant to pay for an expert report was one which the FTT was entitled to impose in the specific circumstances of this case. The condition which required the appellant to pay the respondents’ costs of the application would be upheld as it was in line with a condition imposed by the court in Deajan.
Ranjit Bhose QC (instructed by Birketts LLP) appeared for the appellant; Philip Rainey QC and Robyn Cunningham (instructed by Talbot Walker LLP) appeared for 33 of the respondents.
Eileen O’Grady, barrister
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