Service Charge Consultation: JB Leitch successful in recent application for dispensation from consultation on behalf of landlord

JB Leitch acted for the applicant landlord in its successful application to the First-tier Tribunal for dispensation from the service charge consultation requirements under section 20 of the Landlord and Tenant Act 1985.

The background

In this case, JB Leitch’s client was the landlord of a 21-storey block comprising 165 apartments let on long residential leases across 19 floors, with car parking to the ground and lower ground floors.

The building’s exterior cladding system was found to contain combustible materials and fire safety assessments rendered the building’s fire spread features inadequate. Recommendations were made for remediation works, with the fire spread risk sufficient to warrant interim measures including the implementation of a fire alarm system designed to relieve the waking watch in situ at the time. The building was registered with the Building Safety Fund (“BSF”) and the Waking Watch Relief Fund (“WWRF”).

The landlord’s managing agent issued the first notice under the statutory consultation requirements in respect of cladding remediation works required, inviting observations from leaseholders. In response, the managing agent received communication from some leaseholders challenging the validity of the notice on the grounds that a suitable description and specification of the works had not been provided, and that the notice had been issued prematurely which limited their ability to recommend contractors. The landlord’s agent did not commence consultation in respect of the interim works owing to the urgent need to reduce or remove the waking watch.

The landlord intended to appoint a contractor in respect of the cladding works through a Design & Build tender process. Referencing Daejan Investments Ltd v Benson and others, the landlord made an application for dispensation from any or all of the consultation procedure as it was unable to meet the strict requirements under section 20 and complete consultation.

A number of leaseholders responded to the landlord’s application. The respondent leaseholders did not object in principle to the application as they too wanted the works to proceed as quickly as possible. However, the leaseholders argued that the consultation process could have been completed during the time passed and that the dispensation application was unnecessary. The respondent leaseholders also made an application under section 20C LTA 1985 seeking an order to prevent the landlord from recovering its legal costs of the application from them via the service charge regime.

The decision

The First-tier Tribunal granted dispensation of consultation requirements in respect of both the interim fire alarm works and the main remediation works, on the basis that it had sufficient jurisdiction to do so pursuant to Daejan Investments Ltd v Benson and others [2013]. The FTT recognised that it was able to grant dispensation on such terms as it thinks fit provided that those terms were appropriate in nature and effect. Accordingly, the order for dispensation was made conditional on the landlord keeping leaseholders updated in writing at least every 6 weeks until the completion of the works of key milestones, the progress of works and the costs, as well as the progression of the applications for funding from government sources and insurance or other claims.

In reaching its decision, the FTT made the following findings:

1. Whatever the reasons for any delay to date, such delays do not eradicate the continuing dangers thus, the FTT were satisfied that the works remain urgent. The Tribunal also considered that the works were urgent because of the set of circumstances where time was of the essence (for example, the criteria of the government funding applications, insurance, the need to mitigate losses and the saleability of flats etc);
2. The factual burden on the leaseholders to prove relevant prejudice suffered as a result of the landlord’s inability to consult had not been discharged – the leaseholders had not nominated an alternative contractor at any point despite being made aware of the core issues and had not objected to the section 20ZA application save to say that it was not necessary;
3. Greater prejudice would be likely to accrue if dispensation was not granted because there should be no ongoing and unnecessary delays;
4. The FTT were persuaded that there is a practical need for flexibility in proceeding with a multifaceted and complex building project and of the commercial realities of having suitable contractors available;
5. The condition was imposed because it is reasonable and appropriate for leaseholders to be kept informed of progress in respect of what is being done potentially at their expense.

Further, the FTT refused the leaseholders’ application seeking an order under section 20C. The FTT disagreed with the leaseholder’s argument that the application was unnecessary, stating that, to the contrary, the application was prudent, within the interests of the leaseholders and entirely reasonable to be made particularly at a time when Building Safety Fund funding remained in question.

Whilst explaining its decision not to make a section 20C order, the FTT cited the cases of Schilling v Canary Riverside Development PTE Ltd (LRX/26/2005) and The Leasehold Valuation Tribunal for the London Rent Assessment Panel v SCMLLA [2014] UKUT 58 (LC) to find that unusual circumstances would be required to justify a section 20C order granted in an unsuccessful tenant’s favour and that interfering with the parties’ contractual rights ought not to be done lightly.

Advice and action for landlords

Supporting other decisions in this area, JB Leitch is pleased to have secured this decision on behalf of our landlord client. The FTT focused on the key issue of relevant prejudice suffered by leaseholders, finding that dispensation of consultation requirements should be granted, subject to a reasonable and nominal condition to update leaseholders not less than 6 weekly until completion of the works. This decision reinforces the importance of providing regular information to leaseholders in respect of major works, regardless of whether consultation under section 20 is capable of being carried out.

Managed by our specialist team, JB Leitch progressed this application promptly to reach a satisfactory conclusion.