When is a landlord required to consult for works?

Court of Appeal overturns unpopular and controversial Phillips v Francis decision

Francis & Anor – v – Phillips & Anor & Ors [2014] EWCA Civ 1395

Landlords can breathe a sigh of relief this week following the Court of Appeal’s judgment overturning the High Court’s decision in the matter of Philips v Francis.

In 2012 the High Court had determined that where all works carried out within a service charge period (in that case a year) would cumulatively require any tenant to pay more than £250.00, then the consultation requirements laid out at section 20 Landlord and Tenant Act 1985 should be undertaken, even where the costs of that particular piece of work in itself would not meet the £250.00 threshold. The Court of Appeal has now overturned that decision in what is clearly a common sense judgment.

The practical problems of the High Court’s approach were illustrated by Jonathan Seitler QC on behalf of the landlord in this matter as follows:

A block of flats with 4 tenants would have an annual regulatory limit of £1,000 (4 x £250). Say that within the first 6-months of the service charge year three sets of works are carried out each in the sum of £75.00. This would mean that the landlord has spent £225.00 on service charge items and no consultation has been carried out. Later in the year unexpected expenditure is required in the sum of £800.00 to replace a door frame and then again due to storm damage window repairs are required in the sum of £400.00. That makes total expenditure of £1,425.00.

Using the approach taken by the High Court – “the aggregating approach” – it would mean that the landlord would be required to consult for the £800.00 door frame (which would take the expenditure to £1,025.00) and the window repairs of £400.00, or in the alternative seek dispensation from the First-tier Tribunal. This is despite the fact that none of the individual items would have triggered such consultation under the previous understanding.

The Court of Appeal agreed that this approach is clearly unworkable, as landlords who reach their regulatory limit early in the year, would then spend the remainder of the year in a constant state of consultation or in making applications for dispensation. This in turn would of course increase the costs of a landlord’s administration that would be passed on to tenants by way of increased service charges, not to mention clog up the First-tier Tribunal with numerous applications for dispensation from the consultation requirements.

In the approach favoured by the Court of Appeal – “the sets approach” – using the above illustration the landlord would not be required to consult at all, as no one “set” of works would reach the regulatory limit.

In his judgment at para 36, Lord Dyson, Master of the Rolls, has given guidance as to when an item of works would constitute a “single set of qualifying works”, stating that a common-sense approach should be taken, taking into account all relevant circumstances, which are likely to include:

(i) Where the items of work are to be carried out (whether they are contiguous to or physically far removed from each other);
(ii) Whether they are the subject of the same contract;
(iii) Whether they are to be done at more or less the same time or at different times; and
(iv) Whether the items of work are different in character from, or have no connection with, each other.

Whilst this judgment has been a long-time in coming, Landlords will be pleased to note the Court of Appeal’s common sense approach and that normal service has resumed.