Landlord and tenant – Service charges – Failure to consult – Respondent landlord applying for dispensation from consultation requirements in respect of works completed urgently – First-tier Tribunal (FTT) granting dispensation – Appellant leaseholder appealing – Whether FTT erring in not focussing on issue of prejudice to leaseholders – Appeal allowed
The respondent was the landlord of Kelvin Court, a block of 16 flats at 40/42 Kensington Park Road, London W11. The First-tier Tribunal (FTT) granted unconditional dispensation from the consultation requirements of section 20 of the Landlord and Tenant Act 1985 in respect of the replacement of two boilers and ancillary works at Kelvin Court.
The FTT granted the dispensation because it was satisfied that the respondent had started the consultation process and had kept the leaseholders of flats in the block informed until the works became sufficiently urgent that the respondent had had to carry them out without waiting for the consultation to be completed.
Sections 18 to 23A of the 1985 Act comprised provisions intended to protect residential tenants from having to pay excessive, unreasonable, unexplained or unexpected service charges. Sections 20 and 20ZA provided protection by requiring landlords (and others entitled to levy service charges) to consult with tenants before they incurred the costs of certain qualifying works or entered into certain long-term agreements for the provision of services for which a service charge would be payable.
The appellant was the leaseholder under a long lease of one of the flats in the block. Notice of the appellant’s acquisition of the lease was given on 7 January 2020 but the agents did not add the appellant to future communications intended for leaseholders. The appellant appealed against the FTT’s decision. He argued that he was not consulted by the respondent at all, and that dispensation ought to have been refused by the FTT in view of the prejudice caused to him by the respondent’s failure to comply with the consultation requirements.
Held: The appeal was allowed.
(1) In Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 2 EGLR 45; [2013] EGILR 4, the Supreme Court considered the proper approach to an application for dispensation under section 20ZA. By a majority, the court concluded that securing compliance with the statutory consultation requirements was not an end in itself. Sections 20 and 20ZA were intended to reinforce, and to give practical effect to the twin purposes of section 19 which were to ensure that tenants were not required to pay for unnecessary services or services which were provided to a defective standard, and to pay more than they should for services which were necessary and were provided to an acceptable standard.
The issue on which tribunals should focus when determining an application under section 20ZA(1) was the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the requirements. If the extent, quality and cost of the works were in no way affected by the landlord’s failure to comply with the requirements, dispensation should normally be granted because, in such a case, the tenants would be in precisely the position that the legislation intended them to be, if the requirements had been complied with.
(2) The consultation for which the Service Charges (Consultation Requirements) (England) Regulations 2003 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. 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; if dispensation was to be granted against them all, the totality of the prejudice should be addressed: Aster Communities v Chapman [2021] EWCA Civ 660; [2021] EGLR 33 applied.
(3) In considering an application for dispensation, the FTT had to systematically identify the steps which the landlord had taken and those which it had omitted and for which it required dispensation. The FTT then had to ask itself in terms what was the consequence of those steps not having been complied with. The FTT’s failure to follow those steps was an error of law.
The question of prejudice to the leaseholders was missing from the FTT’s analysis. There was no doubt that the FTT was aware that prejudice was an important issue which it ought to consider. But at no point in its decision did the FTT formulate any direction for itself or identify in its own words the issues it needed to address. Had it done so it would necessarily have included the issue of prejudice.
(4) An absence of prejudice could not be assumed simply because there was a need to undertake work urgently. A proper assessment was required of the consequences of failing to take the particular steps which had been omitted. The landlord was likely to be under contractual or regulatory obligations to provide an essential service or to carry out works to make premises or service installations safe, as in the present case. But such obligations were part of the background to the whole of the statutory regulation of service charges and could not be a reason for disregarding the safeguards provided for leaseholders or granting blanket dispensation simply because work was urgent. Even assuming it was the FTT’s unstated conclusion that any possible prejudice was negated by the need to carry out works urgently, it was not in a position to make such an assessment, because it had not first considered what prejudice might have been caused or what, if anything could now be done to mitigate it.
Applying the approach in Daejan, it was for the appellant to demonstrate a credible case of prejudice, relying on a document which the FTT dismissed without proper justification. While the weight to be given to any evidence was a matter for the fact-finding tribunal, an appellate tribunal could interfere with its conclusions if they had been arrived at based on a fundamental misunderstanding of the facts, as appeared to have occurred here. Accordingly, the appeal would be allowed and the decision of the FTT set aside.
Philip Marshall QC (instructed by Direct Access) appeared for the appellant; Kimberley Ziya, (instructed by Guillaumes LLP, of Weybridge) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Marshall v Northumberland & Durham Property Trust Ltd
