The Landlord and Tenant Act 1985 places obligations on lessors of long residential leases to consult with the lessees prior to undertaking qualifying works in order to be able to recover the cost of those works through the service charge. A failure to consult can result in the lessor’s recovery being limited to £250 per leaseholder. The practical effect of this was that consultations would occur where the likely cost per leaseholder would exceed £250.
In the case of Phillips v Francis the High Court departed from the previously accepted interpretation and decided that qualifying works were all works for which the cost is recoverable under the service charge in any given year. The practical effect of this decision was that once the aggregate cost of works in a service charge year reached £250 per leaseholder, the lessor would have to undergo a formal consultation (or seek a dispensation) for any further works to be carried out in the service charge year. A failure to consult or get a dispensation would mean that the landlord would be unable to recover anything in respect of those works. Previously it had been thought that the £250 cap applied to each individual scheme of work and not to the aggregate cost of works carried out in a service charge year. Post Phillips once the £250 limit had been reached any further works, no matter how minor (or urgent) they were, would require consultation or dispensation. This would make a lessor’s maintenance obligations unworkable in practice.
In what will seem like a victory for common sense the Court of Appeal has overturned this decision and confirmed that the consultation process operates as previously understood, namely:
• Lessors must assess whether a scheme of work is one set of works or a number of individual sets of work. This is a question of fact.
• The constituent parts of a scheme of work do not necessarily form one set of works. The facts may dictate they comprise a number of individual sets of works.
• A failure to consult prior to undertaking a particular set of works will limit the lessor to recovering a maximum of £250 per leaseholder against the cost of that set of works through the service charge.
• The value of a set of works carried out in any service charge year is irrelevant to the question of whether consultation or dispensation is required for any subsequent set of works carried out in the same service charge year.
The Court of Appeal’s judgment restores the law to the position it was in prior to the High Court decision and it is certainly a decision that has been welcomed in most quarters of the residential property sector.
A full transcript of the decision can be found here: http://cases.iclr.co.uk/Subscr/search.aspx?path=WLR%20Dailies/WLRD%202011/wlrd2013-007
by Nitej Davda, Partner