Landlord and tenant – Service charges – Consultation requirements – Dispensation – First-tier Tribunal granting appellant freeholder dispensation from consultation requirements in section 20 of Landlord and Tenant Act 1985 in respect of installation of fire alarm system – Appellant appealing – Whether FTT wrongly imposing conditions – Appeal allowed
The appellant was the freeholder of Sovereign View, a Thames riverside gated estate of 174 flats and houses grouped around five squares. The buildings were of brick with a concrete frame and pitched tile roofs and were internally partitioned with block walls and plasterboard, with solid, carpeted floors and stairs. The residential units were held by the respondents on long leases which included standard provision for the lessees to pay a service charge.
A fire risk assessment reported inadequate fire stopping measures. It recommended that either an immediate waking watch should be put in place, as a very short-term measure, or simple battery-linked smoke detectors installed in each flat. After that, a fire alarm system should be installed across the estate.
In response, the appellant put in place a waking watch at a cost of £10,000 per week, paid for from the service charges reserve fund. It then obtained three tenders for the installation of a fire alarm system.
Section 20 of the Landlord and Tenant Act 1985 required landlords to consult leaseholders before carrying out “qualifying works”, which included the fire alarm installation. The appellant began the consultation process by sending initial notices to the leaseholders. However, the consultation proceeded no further – the appellant accepted the cheapest quotation for the alarm system. Once the new system was installed the waking watch was discontinued, having been in place for three months.
The First-tier Tribunal granted the appellant a dispensation from the consultation requirements in respect of the installation of the fire alarm system, under section 20ZA of the 1985 Act, conditional upon the waking watch scheme being funded by the appellant and not through the service charge, and upon the costs of the current proceedings not being recovered from the service charges. The appellant appealed.
Held: The appeal was allowed.
(1) The question for the FTT, in deciding whether to grant a dispensation, was whether the leaseholders would suffer any prejudice as a result of the failure to consult. That was the relevant prejudice and no other. The tenants could always contend that they would suffer a disadvantage if a dispensation was accorded; however, the only disadvantage of which they could legitimately complain was one which they would not have suffered if the consultation requirements had been fully complied with, but which they would suffer if an unconditional dispensation were granted. The FTT was entitled to impose a condition on the grant of a dispensation on such terms as it thought fit, provided that any such terms were relevant and appropriate in their nature and effect. The consultation requirements could be dispensed with if there was no prejudice to the leaseholders that arose because of the lack of consultation rather than for any other reason. Relevant conditions would address the relevant prejudice to the leaseholders: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 2 EGLR 45; [2013] EGILR 4 applied.
(2) It was not the role of the FTT in considering a dispensation application to penalise the appellant for other aspects of its conduct. A claim that the waking watch was unnecessary would be highly relevant to a challenge to service charges on the basis that the costs incurred by the landlord in setting the waking watch were unreasonable, pursuant to the FTT’s jurisdiction under section 27A of the 1985 Act. But if (which had not been decided) the waking watch was unnecessary, that was irrelevant to the application for a dispensation; equally, therefore, a condition relating to payment for the waking watch was an irrelevant condition.
In the present case, the FTT had imposed the condition not because of any judgment about the merits of the landlord’s decision to impose a waking watch, nor because of the delay, but because it regarded the waking watch as part and parcel of the works to deal with the potential fire risk and took the view that, if matters had been properly dealt with, the landlord would have consulted about the waking watch, despite the fact that there was no legal obligation for it to do so. That erroneous consideration led the FTT to impose an irrelevant condition on the dispensation, namely that the landlord was to fund the waking watch. In effect, the FTT punished the landlord for failing to carry out a consultation which it was not obliged to carry out. Accordingly, the FTT’s decision insofar as it imposed a condition on the dispensation that the landlord was to pay for the waking watch would be set aside.
(3) The FTT also required, as a condition of dispensation, that the landlord would not seek to recover its legal costs in the dispensation from the leaseholders by way of service charge. In Daejan, the Supreme Court contemplated that a relevant condition for dispensation might be that the landlord would pay the leaseholders’ costs of the dispensation application.
The condition imposed was not that the appellant pay the leaseholders’ costs but that it should be unable to recover its own as a service charge under the lease. The appellant argued that that would be inappropriate since the landlord was not seeking an indulgence. The haste to get the fire alarm in, without consulting, was in order to stop the ongoing cost of the waking watch, which was accruing at the alarming rate of £10,000 a week. It was in the leaseholders’ interest that the landlord obtain the dispensation, and the costs incurred in getting the dispensation (despite their opposition) were for their benefit.
(4) This was a case where the leaseholders suffered no relevant prejudice from the absence of consultation. In that circumstance, to impose a condition that took away the landlord’s contractual right to recover its costs from the leaseholders would not be appropriate in circumstances where, whoever in the end paid for the waking watch, it was clearly sensible and in everyone’s interests to get the fire alarm system installed; in that sense, this was a matter of practical importance for all concerned. Accordingly, the Upper Tribunal would decline to impose any condition upon the dispensation about the payment of costs.
Accordingly, the two conditions imposed by the FTT would be set aside and no conditions imposed in their place. The dispensation was therefore unconditional.
Michael Mullin (instructed by JB Leitch Ltd) appeared for the appellant; the respondent appeared by their representatives.
Eileen O’Grady, barrister