Service charges frequently cause disputes between landlords and tenants because the landlord controls how, when, by whom and at what cost work will be carried out. Consequently, parliament has enacted measures to protect tenants of residential premises who are liable to pay variable service charges.
Section 20ZA(1) of the Landlord and Tenant Act 1985 requires landlords to consult tenants before undertaking work above a certain value or entering into long-term agreements for the provision of goods or services. The Service Charges (Consultation Requirements)(
However, the court has the power to dispense with all or any of the consultation requirements if it is satisfied that it is reasonable to do so. Indeed, parliament has amended the legislation originally enacted to enable a leasehold valuation tribunal to dispense with the consultation requirements even though a landlord has acted unreasonably.
In Daejan Investments Ltd v Benson [2011] EWCA Civ 38; [2011] PLSCS 31, a landlord sought dispensation from the requirements. It wanted to recover £270,000 from five leaseholders for the cost of repairs to their building even though it had failed properly to consult them because, despite notifying the tenants of its intention to carry out the work, it did not comply with the detailed requirements laid down for subsequent stages in the process. In addition, it gave the tenants less than 30 days in which to respond.
The Court of Appeal accepted that the landlord had engaged with its tenants, but refused to dispense with the consultation requirements despite the financial consequences. The requirements were imposed to ensure that landlords consulted their tenants. The tenants had been prejudiced by the landlord’s omissions and the financial consequences of refusing dispensation were irrelevant to whether or not the court should exercise its discretion under section 20ZA(1). The higher the sum involved, the more important it is for the consultation requirements to be observed.
Their lordships said that a tribunal might agree to dispense with the consultation requirements in respect of emergency work, or where, realistically, only a single specialist contractor was available or in the case of minor breaches of procedure where tenants were not prejudiced by the lack of consultation. They also envisaged the possibility of taking a less rigorous approach where tenants have acquired the freehold and are, in effect, spending their own money.
The fact that the landlord had accepted the lowest tender was irrelevant; tenants have a real interest in both the cost and quality of major works. Nor did the landlord’s offer of a discount from the cost of the work constitute a ground for dispensing with the consultation requirements; the statutory scheme does not provide for this alternative.
The decision illustrates the importance of compliance with the statutory requirements when dealing with residential service charges. The consequences of not doing so are potentially draconian.
Allyson Colby is a property law consultant