Landlord and tenant – Service charge – Major works – Respondent landlord seeking to recover cost of major works to blocks of flats from leaseholders of flats through service charge – First-tier tribunal allowing recovery of full cost despite defects in works – Whether FTT entitled to find works reasonable in cost and of reasonable standard in light of undertakings by respondent to have defects remedied – Whether appropriate to grant dispensation from statutory consultation requirements under Landlord and tenant Act 1985 without requiring payment of leaseholders’ costs of dealing with dispensation issue – Appeal allowed
The respondent local authority owned the freehold of six blocks of flats, containing 750 residential units in all. The appellants were the long leaseholders of 14 of the flats. The respondents entered into three major works contracts for works to the blocks, one of which, dealing with works to the lifts, cladding, roof, balconies and windows at the properties, was completed in 2009. The respondents sought to recover the £42,000 cost of the works from leaseholders through the service charge provisions in the leases.
On an application to the first-tier tribunal (FTT), a determination was sought regarding the liability of the appellants and other leaseholders to pay the sums demanded. In those proceedings, the overall bill was reduced to a little over £31,756, in part owing to certain concessions by the respondents, but the LVT found that the cost of the works was otherwise payable in full. In doing so, it rejected an argument by the appellants that the sum charged was not reasonable in light of various defects in the work; it held that the defects did not justify any reduction in the light of undertakings given by the respondents that it would have them put right within a certain timeframe and it concluded that, subject to the undertakings, the cost and standard of the works was reasonable. It considered that that approach was justified by the fact that it would be difficult, if not impossible, to determine the individual reduction to which each leaseholder would otherwise be entitled, given that there were differing allegations as to defects and a number of issues that were relevant only to individual flats.
The LVT further decided that, so far as the respondents had failed to comply with the statutory consultation requirements for qualifying works under section 20 of the Landlord and Tenant Act 1985, it was appropriate to grant dispensation from those requirements under section 20ZA. The FTT did not require the respondents to pay the leaseholders’ reasonable costs of dealing with the dispensation issue, having found that there was no evidence of such costs being incurred. The appellants appealed.
Held: The appeal was allowed.
(1) There might be applications, involving the leaseholders of a large number of flats, in which it would become impractical and disproportionate for an FTT to examine each individual defect alleged and, in effect, come up with some form of priced defects schedule for each flat, the amount of which could be deducted from that individual’s bill. In such circumstances, it was permissible for the FTT to deal with the matter on a global basis, even where the parties did not consent to that course: Westminster City Council v Allen [2013] UKUT 0460 (LC) applied. Rather than making an individually priced reduction in respect of each separate lease, the FTT could, for instance, make a global deduction of a certain percentage of the service charge bill to reflect outstanding defects, or make differing deductions for several categories of leaseholders according to how seriously a particular defect affected them. However, it was not permissible for the FTT to proceed as it had done in the instant case, by making no reduction of any kind from a service charge bill for major works despite having accepted that there were significant defects in the standard of the works.
The FTT should not have accepted the undertakings of the respondent in place of carrying out the required calculation of the appropriate reduction. Since an FTT had no inherent jurisdiction to grant an injunction, such as a mandatory injunction that certain works be carried out, it would therefore have no power to enforce any undertaking that might be given. Moreover, the terms of the undertakings given in the instant case were phrased much too imprecisely to be the proper subject of an undertaking.
Accordingly, the matter would be remitted to the FTT to consider the extent of the deduction to be made for each flat to reflect such failure to carry out works to a reasonable standard as had occurred in relation to the various matters covered by the undertakings. It was for the FTT to decide whether to make separate, individually-calculated deductions in respect of each flat or whether it was appropriate to make such deduction on a global basis.
(2) The FTT had erred in finding that the appellants had not incurred any costs in dealing with the dispensation issue merely because no evidence had been advanced to it on the topic. When the matter came before it again, the FTT should consider whether the grant of dispensation from the consultation provisions should be made conditional on the payment of some costs, and if so what costs, to the appellants in relation to the consultation and dispensation issue: Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 1 EGLR 34; [2013] 06 EG 106 applied.
Shomik Datta (instructed by direct access) appeared for the appellants; Alastair Redpath-Stevens (instructed by Judge & Priestley LLP) appeared for respondents.
Sally Dobson, barrister
Click to read transcript: Nogueira and others v Westminster City Council [2014] UKUT 0327(LC)
