Service charges – Qualifying works – Consultation requirements — Appellant owning freehold of block of flats — Respondents holding long leases of flats – Block requiring substantial works — Appellant awarding contract without consulting respondents — Appellant failing to comply with second stage of consultation requirements – Leasehold valuation tribunal holding appellant failing to comply with relevant regulations and refusing dispensation — Lands tribunal (LT) upholding decision on appeal — Whether LT erring in law — Appeal dismissed
The appellant was the freeholder of a building that comprised shops and flats. The five respondents each owned a long lease of a flat on terms that provided for service charges. In 2005, the appellant’s managing agent served notice on the lessees of the appellant’s intention to carry out qualifying works to the building within the meaning of section 20 and 20ZA of the Landlord and Tenant Act 1985, and in respect of which the consultation requirements of the Service Charges (Consultation Requirements)(England) Regulations 2003 applied.
The appellant made various errors in the second stage of the statutory consultation process. Although it provided the lessees with a report that set out the tenders received, which had been submitted by contractors nominated by the managing agent and the respondents respectively, and weighed up the pros and cons of the two that were most favourable it did not provide copies of the estimates until August 2005; by then, the appellant had already awarded the contract to the managing agent’s nominee.
The appellant subsequently sought to recover approximately £270,000 from the respondents in respect of the works. The latter resisted payment owing to the appellant’s failure to comply with the consultation requirements. The leasehold valuation tribunal (LVT) dismissed an application by the appellant, under section 20ZA of the 1985 Act, for dispensation from those requirements and limited its recovery from each lessee to £250. The LVT 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 led the respondents to conclude that further representations would be futile, thereby causing them significant prejudice. It rejected the appellant’s contention that the disproportionate financial consequences of a refusal for the landlord should be taken into account; in doing so, it applied the Lands Tribunal decision in Re 30–40 Grafton Way [2008] PLSCS 198
On appeal, the Upper Tribunal (Lands Chamber) (UT) upheld the LVT’s decision. The LVT had been entitled to conclude that the appellant had committed a serious breach of the consultation requirements and to refuse a dispensation with the consultation requirements under section 20ZA(1): see [2009] UKUT 233 (LC); [2009] PLSCS 354. The appellant appealed.
Held: The appeal was dismissed.
Section 20ZA(1) entitled the LVT to dispense with the consultation requirements, not with the statutory consequences of non-compliance. The statute focussed on the consultation requirements, not on the consequences of non-compliance. As a general rule, the distinction that the respondents drew between the relevance of circumstances going to the integrity of the consultation process and the irrelevance of the consequences flowing from the grant or refusal of dispensation was well founded.
The legislative focus on the consultation requirements highlighted that a proper consultation process comprised the substance of the scheme. The fact that non-compliance with the consultation requirements might involve a significant financial loss was no more than an intrinsic part of the statutory scheme. The court was satisfied that the LVT and the UT had not erred in law or misdirected themselves in treating the financial consequences of the grant or refusal of dispensation as irrelevant to the exercise of the discretion under section 20ZA(1): Grafton Way considered.
Significant prejudice to the tenants was an important consideration in exercising the dispensatory discretion under section 20ZA(1). In the instant case, the appellant’s non-compliance in curtailing the consultation constituted a serious failing that had prejudiced the respondents. A proper consultation was of the essence of the statutory scheme; it had been devised to protect the interests of tenants such as the respondents. Although, in some instances, a landlord might be able to demonstrate that a failure to comply with the consultation requirements made no difference and did not prejudice the tenants, such arguments should be carefully examined to avoid undermining the purpose of the statutory scheme or a premium on recalcitrance.
The LVT had made a finding that there had been significant prejudice and it had been justified in refusing a dispensation.
Nicholas Dowding QC and Stephen Jourdan QC (instructed by GSC Solicitors) appeared for the appellant; Philip Rainey QC (instructed by K&L Gates LLP) appeared for the first to fourth respondents; James Fieldsend (instructed by Jaffe Porter Crossick LLP) appeared for the fifth respondent.
Eileen O’Grady, barrister
