Service Charge: JB Leitch Successfully Appeals Conditions Imposed by the First-tier Tribunal on a Grant of Dispensation from statutory consultation requirements

JB Leitch has been successful in the Upper Tribunal in an appeal against conditions imposed by the First-tier Tribunal on a grant dispensation from the statutory consultation requirements under section 20 Landlord and Tenant Act 1985.

The background

JB Leitch brought this appeal in the Upper Tribunal (“UT”) on behalf of our landlord client concerning a gated estate in London, comprising 174 residential flats and homes contained in a number of buildings grouped around squares on the estate, of which our client is the freeholder. Residential units are let on long leases, each of which contains provisions for the payment of service charge by the leaseholders.

On an application made by JB Leitch on behalf of our landlord client, the First-tier Tribunal (“FTT”) granted the landlord dispensation from the statutory service charge consultation requirements in relation to fire alarm installation works. However, the grant of dispensation was made subject to conditions (which the landlord subsequently argued the FTT was wrong to impose) being:

1. The dispensation was subject to the costs of the waking watch patrol not being recoverable via the service charge scheme; and
2. The dispensation was subject to the landlord’s costs of making the dispensation application not being recoverable via the service charge scheme.

The reason that the landlord was unable to consult in accordance with section 20 in this case was due to the urgent nature of the fire alarm install works which would negate the requirement of a waking watch patrol, which was financially burdensome on the leaseholders.

During proceedings, the leaseholders had argued that the waking watch was part of the set of works, had been implemented without consultation, and was unnecessary because an alternative could have been implemented. The landlord had always countered that the application was in relation to the fire alarm works and the costs of the waking watch were not to be taken into account as any challenge to those costs could be dealt with by way of an application under section 27A Landlord and Tenant Act 1985.

The landlord appealed up to the Upper Tribunal (the “UT”) in respect of the conditions imposed by the First-tier Tribunal, on the basis that no financial prejudice had been identified by the leaseholders (as a result of the landlord’s failure to consult) and thus the conditions were not reasonable in their nature and effect.

The decision

The UT considered each condition:

1. Waking watch costs

Referencing Daejan Investments Ltd v Benson [2013], the landlord argued the FTT needed to consider whether the leaseholders would suffer relevant (financial) prejudice as a result of the landlord’s failure to consult. The landlord argued that the cost of the waking watch patrol could not amount to relevant prejudice suffered by the leaseholders, as the costs of the waking watch had not been brought about by the landlord’s failure to consult – there was no causal link between the two.

The FTT was entitled to impose conditions on the dispensation, but they must be relevant and appropriate to address the relevant prejudice to the leaseholders. The costs of the waking watch may be relevant to an application for a determination over the reasonableness of service charges, but that was not relevant to an application for dispensation in relation to the fire alarm works. The UT found that the condition imposed on the dispensation in relation to the waking watch was irrelevant; the landlord was not obliged to carry out a consultation in relation to the waking watch, but it was effectively ‘punished’ for not doing so by the FTT through this condition.

2. Recovery of costs of the application

On a similar basis as above, the costs condition imposed by the FTT was also considered inappropriate by the UT and was set aside. It was in the mutual interests of the landlord and the leaseholders to install the fire alarm promptly, and the application was not an ‘indulgence’ for the landlord but a matter of practical importance for all.

The UT set aside the conditions imposed on the grant of dispensation by the FTT, and did not impose any conditions in their place, making the dispensation unconditional.

Final thoughts

This decision considers the FTT’s discretion to impose conditions on a grant of dispensation, and suggests that when deciding whether a condition is appropriate, consideration may be given as to whether the condition(s) would deal with any relevant prejudice suffered by the leaseholders as a result of the landlord’s failure to consult.