Landlord and Tenant Act 1985 – Service charges – Consultation requirements – Service Charges (Consultation Requirements) (England) Regulations 2003 – Appellant landlord of block of flats – Appellant carrying out qualifying works within sections 20 and 20ZA of 1985 Act but failing to comply with consultation requirements under 2003 Regulations in respect of those works – Whether appropriate to grant dispensation from consultation requirements – Correct approach to exerciser of jurisdiction to dispense – Whether permissible to grant dispensation on terms – Dispensation refused – Appeal allowed The five respondents each held a long lease of a flat in a building owned by the appellant landlord. In 2005, the appellant’s managing agent gave notice to the lessees in the building of the appellant’s intention to carry out qualifying works within the meaning of sections 20 and 20ZA of the Landlord and Tenant Act 1985, in respect of which the consultation requirements of the Service Charges (Consultation Requirements)(England) Regulations 2003 applied.5 The appellant made various errors in the statutory consultation process. Although it provided the lessees with a report that set out the tenders received and weighed up the pros and cons of the two that were most favourable, it failed to provide copies of the actual estimates until the end of July 2006. By then, the appellant had already informed the lessees that the contract for the works had been awarded. The appellant sought to recover approximately £270,000 for the works from the respondents, who resisted payment on the ground of the appellant’s non-compliance with the consultation requirements. The appellant applied to the leasehold valuation tribunal (LVT), under section 20ZA(1) of the 1985 Act, for dispensation from those requirements. In that context, it offered a discount of £50,000 from the service charge claimed. The LVT dismissed the application, with the statutory consequence that the appellant’s recovery from each lessee was limited to £250. It held that the appellant’s failure to provide the estimates, until after it had indicated that the contract had been awarded, had curtailed the consultation and caused significant prejudice to the respondents. That decision was subsequently upheld by the Upper Tribunal (Lands Chamber) and the Court of Appeal: see [2009] UKUT 233 (LC); [2009] PLSCS 354 and [2011] EWCA Civ 38; [2011] 2 EGLR 113. Both considered that the loss of the opportunity to make further representations was a serious matter that could be assumed to cause significant prejudice to the respondents, so as to justify non-dispensation. They also considered that the financial consequences to the appellant, and its offered £50,000 discount, were irrelevant to the exercise of the jurisdiction. The appellant appealed to the Supreme Court. Held (Lord Hope and Lord Wilson dissenting): The appeal was allowed. (1) Sections 19 to 20ZA of the 1985 Act were directed towards ensuring, first, that tenants of flats were not required to pay for unnecessary services or those that were provided to a defective standard and, second, that they were not required to pay more than they should for such services as were necessary and of an acceptable standard. Sections 20 and 20ZA gave practical effect to those two purposes. The obligation to consult the tenants in advance about proposed works went to the issue of the appropriateness of those works, while the obligations to obtain more than one estimate and to consult about them went to the quality and cost of the proposed works. Since the purpose of the consultation requirements was to protect tenants from paying for inappropriate works or paying more than was appropriate, the LVT should, when entertaining an application by a landlord for dispensation from those requirements, focus on the extent, if any, to which the tenants were prejudiced in either respect by the landlord’s failure to comply with the requirements. If the extent, quality and cost of the works were accepted to be unaffected by the landlord’s non-compliance, dispensation should normally be granted since the tenants were in the position that the legislation had intended them to be. Dispensation should not be refused merely because the landlord had seriously breached or departed from the requirements. Adherence to the requirements was not an end in itself but merely a means to the end of protecting tenants in relation to service charges. Contrary to the view of the tribunals below and of the Court of Appeal, no distinction should be made in that regard between a “serious failing” and a “technical, minor or excusable oversight”. Such a distinction could lead to uncertainty and unpredictable outcomes, involving as it did a subjective assessment of the gravity of the breach and the culpability of the landlord, on which different LVTs might take varying views. Instead, it was important to find real prejudice to the tenants flowing from the landlord’s breach; the existence of such prejudice was the main, and normally the sole, question for the LVT when considering how to exercise its jurisdiction. The financial consequences to the landlord of not granting a dispensation were irrelevant to the exercise of the jurisdiction, as was the nature of the landlord. (2) When considering whether the tenants had suffered prejudice, the LVT should view the tenants’ arguments sympathetically and resolve in their favour any doubts as to whether, for example, the works would have cost less if the tenants had been given a proper opportunity to make representations. Where tenants complained that they had not been given the requisite opportunity to make representations to the landlord about the proposed works, they had an obligation to identify what they would have said had they been given that opportunity. If they showed that, as a result of the landlord’s non-compliance with the requirements, they had been unable to make a reasonable point that, if adopted, was likely to have reduced the cost of the works or resulted in some other advantage, then the LVT was likely to proceed on the assumption that the landlord would have accepted that point. The worse the landlord’s failure, the more readily an LVT would accept that the tenants had suffered prejudice. Although the LVT should not accept any suggestion of prejudice, however far-fetched, once the tenants had shown a credible case for prejudice the LVT should look to the landlord to rebut it. (3) On an application under section 20ZA(1), the LVT was not faced with a choice between either dispensing with the consultation requirements unconditionally or refusing dispensation. In the absence of clear words precluding the imposition of terms, the LVT was empowered to impose conditions on the grant of dispensation so long as those conditions were appropriate in their nature and effect. So far as the tenants would suffer prejudice as a result of the landlord’s failure, the LVT should, in the absence of some good reason to the contrary, require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice. For example, where the result of the non-compliance was that the works had cost more, dispensation might be granted on terms that the service charge recovery was reduced by the amount of the extra cost. In such cases, the LVT would be concluding that, applying the approach laid down by section 20ZA(1), it was “reasonable” to grant dispensation only if the landlord accepted certain conditions. The conditions could include a requirement that the landlord pay the tenants’ costs incurred in connection with the section 20ZA(1) application. Where the tenants reasonably incurred such costs in considering the application and arguing about whether it should be allowed and on what terms, it was appropriate that the landlord should pay those costs as a term of being accorded the indulgence of dispensation. Save where the expenditure was self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to pay them as a term of dispensation. (4) The LVT, Upper Tribunal and Court of Appeal had taken the wrong approach since they had: (i) taken into account the gravity of the non-compliance, not only in relation to the prejudice that it had caused to the respondent tenants but as a freestanding matter; (ii) considered that the mere possibility of prejudice, however speculative and in the absence of any evidence to support its existence, was sufficient to preclude the grant of a dispensation; and (ii) in the case of the Upper Tribunal and Court of Appeal, considered that it was not open to the LVT to grant a dispensation on terms. The respondents had not identified any relevant prejudice that they had suffered as a result of the appellant’s non-compliance and it was questionable, on the evidence, whether they had suffered any. They had been given a substantial opportunity to comment on the proposed works and it was difficult to see what further submissions or suggestions they would have made. The respondents had identified no specific points that had not already been made. There was no evidence that they had suffered relevant prejudice to the extent of the £50,000 discount offered by the appellant. Consequently, the LVT should have granted dispensation on terms that the appellant make the offered discount and pay the reasonable costs of the respondents. Nicholas Dowding QC and Stephen Jourdan QC (instructed by GSC Solicitors LLP) appeared for the appellant; Philip Rainey QC and Jonathan Upton (instructed by Excello Law Ltd) appeared for the first to fourth respondents; James Fieldsend (instructed by Jaffe Porter Crossick LLP) appeared for the fifth respondent. Sally Dobson, barrister
Landlord and Tenant Act 1985 – Service charges – Consultation requirements – Service Charges (Consultation Requirements) (England) Regulations 2003 – Appellant landlord of block of flats – Appellant carrying out qualifying works within sections 20 and 20ZA of 1985 Act but failing to comply with consultation requirements under 2003 Regulations in respect of those works – Whether appropriate to grant dispensation from consultation requirements – Correct approach to exerciser of jurisdiction to dispense – Whether permissible to grant dispensation on terms – Dispensation refused – Appeal allowed The five respondents each held a long lease of a flat in a building owned by the appellant landlord. In 2005, the appellant’s managing agent gave notice to the lessees in the building of the appellant’s intention to carry out qualifying works within the meaning of sections 20 and 20ZA of the Landlord and Tenant Act 1985, in respect of which the consultation requirements of the Service Charges (Consultation Requirements)(England) Regulations 2003 applied.5 The appellant made various errors in the statutory consultation process. Although it provided the lessees with a report that set out the tenders received and weighed up the pros and cons of the two that were most favourable, it failed to provide copies of the actual estimates until the end of July 2006. By then, the appellant had already informed the lessees that the contract for the works had been awarded. The appellant sought to recover approximately £270,000 for the works from the respondents, who resisted payment on the ground of the appellant’s non-compliance with the consultation requirements. The appellant applied to the leasehold valuation tribunal (LVT), under section 20ZA(1) of the 1985 Act, for dispensation from those requirements. In that context, it offered a discount of £50,000 from the service charge claimed. The LVT dismissed the application, with the statutory consequence that the appellant’s recovery from each lessee was limited to £250. It held that the appellant’s failure to provide the estimates, until after it had indicated that the contract had been awarded, had curtailed the consultation and caused significant prejudice to the respondents. That decision was subsequently upheld by the Upper Tribunal (Lands Chamber) and the Court of Appeal: see [2009] UKUT 233 (LC); [2009] PLSCS 354 and [2011] EWCA Civ 38; [2011] 2 EGLR 113. Both considered that the loss of the opportunity to make further representations was a serious matter that could be assumed to cause significant prejudice to the respondents, so as to justify non-dispensation. They also considered that the financial consequences to the appellant, and its offered £50,000 discount, were irrelevant to the exercise of the jurisdiction. The appellant appealed to the Supreme Court. Held (Lord Hope and Lord Wilson dissenting): The appeal was allowed. (1) Sections 19 to 20ZA of the 1985 Act were directed towards ensuring, first, that tenants of flats were not required to pay for unnecessary services or those that were provided to a defective standard and, second, that they were not required to pay more than they should for such services as were necessary and of an acceptable standard. Sections 20 and 20ZA gave practical effect to those two purposes. The obligation to consult the tenants in advance about proposed works went to the issue of the appropriateness of those works, while the obligations to obtain more than one estimate and to consult about them went to the quality and cost of the proposed works. Since the purpose of the consultation requirements was to protect tenants from paying for inappropriate works or paying more than was appropriate, the LVT should, when entertaining an application by a landlord for dispensation from those requirements, focus on the extent, if any, to which the tenants were prejudiced in either respect by the landlord’s failure to comply with the requirements. If the extent, quality and cost of the works were accepted to be unaffected by the landlord’s non-compliance, dispensation should normally be granted since the tenants were in the position that the legislation had intended them to be. Dispensation should not be refused merely because the landlord had seriously breached or departed from the requirements. Adherence to the requirements was not an end in itself but merely a means to the end of protecting tenants in relation to service charges. Contrary to the view of the tribunals below and of the Court of Appeal, no distinction should be made in that regard between a “serious failing” and a “technical, minor or excusable oversight”. Such a distinction could lead to uncertainty and unpredictable outcomes, involving as it did a subjective assessment of the gravity of the breach and the culpability of the landlord, on which different LVTs might take varying views. Instead, it was important to find real prejudice to the tenants flowing from the landlord’s breach; the existence of such prejudice was the main, and normally the sole, question for the LVT when considering how to exercise its jurisdiction. The financial consequences to the landlord of not granting a dispensation were irrelevant to the exercise of the jurisdiction, as was the nature of the landlord. (2) When considering whether the tenants had suffered prejudice, the LVT should view the tenants’ arguments sympathetically and resolve in their favour any doubts as to whether, for example, the works would have cost less if the tenants had been given a proper opportunity to make representations. Where tenants complained that they had not been given the requisite opportunity to make representations to the landlord about the proposed works, they had an obligation to identify what they would have said had they been given that opportunity. If they showed that, as a result of the landlord’s non-compliance with the requirements, they had been unable to make a reasonable point that, if adopted, was likely to have reduced the cost of the works or resulted in some other advantage, then the LVT was likely to proceed on the assumption that the landlord would have accepted that point. The worse the landlord’s failure, the more readily an LVT would accept that the tenants had suffered prejudice. Although the LVT should not accept any suggestion of prejudice, however far-fetched, once the tenants had shown a credible case for prejudice the LVT should look to the landlord to rebut it. (3) On an application under section 20ZA(1), the LVT was not faced with a choice between either dispensing with the consultation requirements unconditionally or refusing dispensation. In the absence of clear words precluding the imposition of terms, the LVT was empowered to impose conditions on the grant of dispensation so long as those conditions were appropriate in their nature and effect. So far as the tenants would suffer prejudice as a result of the landlord’s failure, the LVT should, in the absence of some good reason to the contrary, require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice. For example, where the result of the non-compliance was that the works had cost more, dispensation might be granted on terms that the service charge recovery was reduced by the amount of the extra cost. In such cases, the LVT would be concluding that, applying the approach laid down by section 20ZA(1), it was “reasonable” to grant dispensation only if the landlord accepted certain conditions. The conditions could include a requirement that the landlord pay the tenants’ costs incurred in connection with the section 20ZA(1) application. Where the tenants reasonably incurred such costs in considering the application and arguing about whether it should be allowed and on what terms, it was appropriate that the landlord should pay those costs as a term of being accorded the indulgence of dispensation. Save where the expenditure was self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to pay them as a term of dispensation. (4) The LVT, Upper Tribunal and Court of Appeal had taken the wrong approach since they had: (i) taken into account the gravity of the non-compliance, not only in relation to the prejudice that it had caused to the respondent tenants but as a freestanding matter; (ii) considered that the mere possibility of prejudice, however speculative and in the absence of any evidence to support its existence, was sufficient to preclude the grant of a dispensation; and (ii) in the case of the Upper Tribunal and Court of Appeal, considered that it was not open to the LVT to grant a dispensation on terms. The respondents had not identified any relevant prejudice that they had suffered as a result of the appellant’s non-compliance and it was questionable, on the evidence, whether they had suffered any. They had been given a substantial opportunity to comment on the proposed works and it was difficult to see what further submissions or suggestions they would have made. The respondents had identified no specific points that had not already been made. There was no evidence that they had suffered relevant prejudice to the extent of the £50,000 discount offered by the appellant. Consequently, the LVT should have granted dispensation on terms that the appellant make the offered discount and pay the reasonable costs of the respondents. Nicholas Dowding QC and Stephen Jourdan QC (instructed by GSC Solicitors LLP) appeared for the appellant; Philip Rainey QC and Jonathan Upton (instructed by Excello Law Ltd) appeared for the first to fourth respondents; James Fieldsend (instructed by Jaffe Porter Crossick LLP) appeared for the fifth respondent. Sally Dobson, barrister
