The property world has been anticipating the Court of Appeal decision in Francis v Phillips [2014] EWCA Civ 1395 for over a year. The dispute between the landlords and tenants of chalets on a holiday site in Cornwall, about expenditure on work required to bring the site up to a first class standard, had resulted in a controversial High Court decision, which shocked residential landlords.
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 in any twelve month period.
The approach taken by landlords, before the High Court decision, was to consider the cost of the work in any particular project. Consequently, they did not consult their tenants unless the cost of the particular work proposed was expected to exceed the £250 threshold. However, the High Court decided that there is no triviality threshold. It ruled that the costs of all qualifying work in a service charge period should be aggregated together, without distinguishing between different projects, and, if any one tenant would have to contribute more than £250 for that period, then section 20ZA(1) would apply.
The Court of Appeal has overturned the High Court decision. It was satisfied that the aggregating approach was wrong. It was not sensible, would cause serious practical problems and could not have been intended by Parliament, which had provided adequate protection for tenants by enacting section 19 of the 1985 Act (which provides that service charge costs must be reasonable, and reasonably incurred).
To apply the consultation obligation to every item of maintenance or repair would be unworkable, time-consuming, expensive and slow. Landlords and tenants would be in a state of perpetual consultation. The added administrative burden would clog up the system. It would make running a site very difficult and would, in all probability, be more costly for tenants too, since most leases enable landlords to recover administrative costs from their tenants.
The court was also critical of the fact that the High Court decision had, by its very nature, imported an annual limit on spending. This is not what the statute says and the provisions in the 1985 Act are more consistent with a project-by-project approach, rather than an aggregated approach to the consultation requirements.
So what constitutes a single, or multiple, set of works for the purposes of the legislation? The Court of Appeal thought that the answer will usually be obvious. It will be a question of fact, not law, which should be determined in a common sense way on the basis of all the relevant circumstances. Relevant factors may be: whether the works are contiguous, or physically removed from each other; whether they are covered by one or more contracts; whether they are done simultaneously, or at different times; and whether they are different in character, or are connected with each other.
The chalet park tenants may be disappointed to have lost their case. However, the Court of Appeal’s devastating analysis illustrates the difficulties that landlords and tenants would have faced, if the previous decision had been allowed to stand.
Allyson Colby is a property law consultant
