If you have any involvement in residential service charges then you need to know about a recent Court of Appeal decision in which, for the very first time, the Court got to consider the circumstances in which it would be proper to dispense with some or all of the detailed consultation requirements that landlords of long leaseholders are subject to in the context of residential service charges.
If you are a landlord and you have not complied with the consultation requirements set out in the Landlord & Tenant Act 1985 before embarking on works to the building and trying to charge the cost of those works to your residential tenants then this decision will be unwelcome news.
As you will probably know a tenant is only liable to pay £250 in any accounting period in respect of works on a building unless the landlord has first either consulted the tenant in the way in which the law requires or obtained dispensation from the consultation requirements.
Ever since the 1985 Act the Leasehold Valuation Tribunal have had power to dispense with all or any of the consultation regulations if that is reasonable.
In a nutshell there are 3 hoops that a landlord has to go through to be sure of being able to recover the amount he spends on a building from his tenants under the service charge provisions in their leases.
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Firstly, the landlord has to tell the leaseholders what work he is going to carry out and why so that the tenants can make comments and nominate possible contractors. The landlord is obliged to take note of what the tenants say.
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Secondly, the landlord has to provide details of at least 2 of the estimates for the work to the leaseholders who once again get the chance to make observations on those estimates which the landlord has to take into account.
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Thirdly, the landlord has to tell the leaseholders which contractor has been selected to carry out the work.
The Leasehold Valuation Tribunal (LVT) has been able to dispense with all or any of those obligations since October 2003 (in England).
If a landlord has failed to go through the necessary consultation requirements his position is potentially made very poor as he is going to be limited to only being able to get back £250 per leaseholder as against however much the work happens to have cost him.
Landlords who by mistake or otherwise have failed to go through the necessary consultation procedure have therefore been in the habit of asking the LVT to dispense with the consultation requirements.
The Court of Appeal have now made it clear that:-
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The financial effects of granting or refusing dispensation on either the landlord or the tenant are not relevant to the question of whether dispensation should be granted.
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If the failure to consult has caused prejudice to the leaseholders, it is very unlikely that dispensation will be granted.
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Dispensation should be granted if it's a case of emergency works or if the work is so specialised that in reality there is only one contractor who could realistically be awarded the contract or in a case where there has been a minor breach of the consultation regulations causing no prejudice to the tenants. The Court of Appeal haven't given any guidance about what sort of breach would be seen as minor and what sort of breach as major.
The lesson to be learned from this case is that if you are a landlord or a landlord's agent and you are considering having works carried out on a building which you are going to ask the leaseholders to pay for it is absolutely essential that you follow the consultation requirements in the Landlord & Tenant Act 1985 to the letter.
If you require any further information or advice about the consultation requirements or about residential service charges payable by long leaseholders please contact Nick Lambert on 0114 266 6660 or email [email protected].
