Service charges frequently cause disputes between landlords and tenants because the landlord controls how, when, by whom and at what cost work will be done. 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)(England) Regulations 2003 restrict the amount that tenants can be required to pay for work about which they have not been properly consulted to £250. The cap in respect of qualifying long–term agreements is £100. 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.
In Stenau Properties Ltd v Leek [2011] UKUT 478 (LC); [2012] PLSCS 18, a landlord sought dispensation from the requirements on the ground that its tenants had not suffered any prejudice as a result of its failure to follow the statutory procedure. The leasehold valuation tribunal had decided that the service charges were justified and reasonable, but felt obliged to restrict the service charge to £250 per tenant because the landlord had failed to consult its tenants in the manner required.
The landlord argued that it had met with its tenants. It accepted that a breach of the consultation regulations would inevitably cause some prejudice, but argued that the prejudice would not necessarily be significant, even if the breach was substantial. It tried to persuade the Upper Tribunal that there was no evidence to suggest that an alternative contractor could have done the work better, or more cheaply, or that the tenants would have obtained professional advice or that they had been prejudiced by its failure to give them the full 60-day period prescribed by the regulations to make representations. The tenants argued that the process itself is important and, where there is a substantial failure in the process, prejudice is inevitable and can be assumed.
The tribunal rejected the landlord’s application. It ruled that a properly conducted consultation process should give tenants confidence in the decisions that are reached and leave them feeling as comfortable as they can be with the service charges that are likely to flow from those decisions. The opportunity to participate in a meaningful way in the decision-making process is of real value. Where there has been a minor breach of procedure it will be important for a tribunal to find evidence that the tenants were prejudiced or disadvantaged as a result. However, where the breach is serious, it may be reasonable to assume that the tenants have suffered prejudice, even though there is no evidence to suggest that the work would have been done differently, had the rules been observed.
The Supreme Court is expected to offer further guidance following an appeal from the decision in Daejan Investments Ltd v Benson [2011] EWCA Civ 38. In the meantime, landlords would be well-advised to comply with the statutory requirements to maximise service charge recovery.
Allyson Colby is a property law consultant