Service charges – Qualifying works – Consultation requirements – Service Charges (Consultation Requirements)(England) Regulations 2003 – Sections 20 and 20ZA of Landlord and Tenant Act 1985 – Appellant landlord failing to comply with second stage of consultation requirements – Leasehold valuation tribunal (LVT) refusing application to dispense with requirements – Service charge capped at £250 as a result – Whether financial consequences of refusal to be taken into consideration – Whether LVT having power to award substantial service charge with reduction to take account of prejudice caused to lessees by non-compliance with consultation requirements – Appeal dismissed
The appellant owned the freehold of a building that comprised shops and flats. The five respondents each owned a long lease of a flat in the building on terms that provided for the payment of service charges. In early 2005, the appellant’s managing agent gave notice to the lessees of the appellant’s intention to carry out qualifying works to the building within the meaning of sections 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 lessees with a report that set out the tenders received and weighed up the pros and cons of the two that were most favourable, which had been submitted by contractors nominated by the managing agent and the respondents respectively, it failed to provide copies of the actual estimates until August 2005; by then, the appellant had already informed the lessees that the contract had been awarded to the managing agent’s nominee.
The appellant subsequently sought to recover approximately £270,000 from the respondents in respect of the works. The respondents resisted payment on the ground of 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. In consequence, the appellant’s recovery from each lessee was limited 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 effectively 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 appellant asked the court to depart from the reasoning in Grafton and argued that an LVT should be able to balance the financial effects together with other factors, including the relative seriousness of the non-compliance with the consultation requirements, in the exercise of a broad discretion. In the alternative, it submitted that the court should reduce the amount of the charge to reflect its view of the prejudice suffered, by reference to the general requirement in section 19 of the 1985 Act for service charges to be reasonable.
Decision: The appeal was dismissed.
The approach taken in Grafton was supported by the statutory language and there were no grounds for departing from it. The LVT’s discretion was to dispense with the consultation requirements, not with their statutory consequences. The focus had to be on the scheme and purpose of the regulations. Although the potential financial effects of a refusal to dispense with the consultation requirements were draconian for the landlord and gave a windfall to the lessees, that was an intrinsic part of the legislative scheme. Had parliament intended to provide a power to remove or mitigate the financial consequences, it could have done so. Likewise, it was not open to the court to reduce the amount of the charge to reflect its view of the prejudice suffered; parliament could have, but had not, enacted a scheme with such an alternative, and, given the existence of a specific scheme in respect of consultation, the general provisions of section 19 could not be used to achieve the same effect.
The potential financial consequences for the parties were relevant only as part of the context in which the matter was to be considered, in that if the non-compliance had not detracted significantly from the purpose of the regulations or caused significant prejudice, dispensation would not normally be refused. Those questions had to be considered in the light of the particular facts of each case, including the nature of the parties and their relationship. For example, a more rigorous approach might be taken to non-compliance by a local authority or commercial landlord than in a case where the landlord was a group of lessees by another name, and a less rigorous approach might be appropriate where a small group of tenants were jointly represented by an active tenants’ association and closely involved in the discussions from the start. On the other hand, it would rarely be reasonable to dispense completely with an entire stage of the consultation process.
In the instant case, the LVT had been entitled to find that the regulations had been breached and that the breach was serious rather than a technical or excusable oversight. It involved a failure by a corporate landlord to ensure that those responsible for the stage 2 consultation properly understood its requirements. The result had been to nullify the lessees’ statutory right to make further representations at that stage following examination of the estimates. The LVT had been entitled to start from the position that, given the seriousness of the breach, it was not for the lessees to prove specific prejudice and that it was sufficient that further representations would have been likely to influences the decision.
Stephen Jourdan QC (instructed by GSC Solicitors) appeared for the appellant; Fiona Dewar (instructed by K&L Gates LLP) appeared for the respondents.
Sally Dobson, barrister
