The full decision in the epic Phillips v Francis case is reproduced below.
In what appears to be a draw, LKP is studying the consequences of this on the costs for the long suffering park home owners.
Key sections:
paras 23-27:
Discussion
23. In a nutshell, therefore, the Chancellor decided that qualifying works are all the “works on a building or any other premises” (section 20ZA(2)) in respect of which the landlord incurs costs “in connection with the matters for which the service charge is payable” (section 18(2)). I shall call this “the aggregating approach”. He added that, as the contributions are payable in this case on an annual basis, the limit is applied to the proportion of the qualifying works carried out in the relevant year. In other words, the correct approach to whether section 20 requires a landlord to consult (or seek a dispensation) is to aggregate all works in any given year without division into separate sets of qualifying works. This was not a construction of section 20 for which Mr Stoner QC (for the lessees) contended. On this appeal, however, his primary case is that the Chancellor’s construction is correct.
24. The rival construction, for which Mr Seitler contends (supported by Mr Davey for the Secretary of State), is that Robert Walker LJ and Judge Cotter were right. What is required is what Mr Seitler calls “a sets approach” and Mr Davey calls “an individuated approach”: section 20 should be applied by reference to individual sets of works. I shall use the phrase “the sets approach”.
25. The language of the statute does not expressly provide an answer to the question of construction. Section 20ZA(2) unhelpfully defines “qualifying works” as “works on a building or any other premises”. But I am satisfied that the aggregating approach is wrong.
26. For reasons I shall explain, it is not a sensible approach and gives rise to serious practical problems. It cannot therefore have been intended by Parliament. It requires that, at the very latest, once the limit for contributions has been reached (£250 per tenant), the landlord must consult the tenants on any service charge items, however small they may be (presumably subject only to the de minimis exception). Mr Seitler illustrates the problem with the following example. Imagine a residential block of flats with 4 tenants: the annual regulatory limit is 4 x £250: £1000. Three lots of minor works on a building each costing £75 are carried out in the first half of the year. The landlord has spent £225 on service charge items. There has been no consultation. Unexpectedly, in September the outer door of the block breaks and a new door frame is required which would cost £800. A storm in November causes window damage that would cost £400 to repair. On the sets approach, the landlord would not need to consult on any of these items. They are all distinct sets of qualifying works none of which costs more than £1000. The landlord could respond immediately and repair the damage to the door and the window. The tenants are still protected because they have the after-the-event protection afforded by section 19 of the 1985 Act that the costs are only relevant costs to the extent that they are reasonably incurred and of a reasonable standard.
27. On the aggregating approach, the annual limit is exceeded by the broken door. The landlord is obliged to consult on it. This process takes time and costs money. If instead he replaces the door immediately, he has no right to recover the full amount without dispensation. Seeking dispensation has attendant legal and administrative costs as well as the risk of non-recovery and delay. But if he does not replace the door, the flats are unsafe and he is likely to have irate tenants.
…
CONCLUSION
55. For the reasons that I have set out above, I would allow the lessors’ appeal against the decision of the Chancellor on the Qualifying Works Issue, but dismiss their appeal on the Management Issue.
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71. I agree with the Chancellor’s conclusion that the £95,000 wages paid to the appellants by the Company do not fall within paragraph 6 of schedule 3 and are not properly recoverable under the service charge provisions of the Lease. My reasoning is not, however, entirely similar.
Related posts:
Phillips v Francis … Pity the poor park home owners
Right to manage in chaos after Court of Appeal decision
Daejan v Benson: ‘on the whole good for landlords’
Section 20 consultation: ‘FPRA is siding with landlords’
Andover asphalt major works war sees landlord forced to pay for leaseholders’ expert
If Peverel Retirement is admitted to ARMA-Q, what message does that send thousands of cheated pensioners?
The Conclusion in this Case has it helped us Leaseholders?
This posting in part was provided on Campaign against retirement leasehold exploitation in 2013. I have changed the order around to fit my own development Ashbrook Court.
When we were required to replace our Warden Call System (WCS) our Managing Agents Peverel Management Services Ltd (PMSL)should have properly informed us of our rights under S20 which they did not.
PMSL did state that due to the urgency they were not required to carry out a full consultation which should have been limited too £7000.00 max i.e. 28 times £250.00. We did pay out over £20,000 for the WCS.
PMSL claim that a lightening strike took out the Warden Call System in July 2007 and it took 9 months before the new system was in place.
The tender deadline was Noon on the 25/09/07. The Glyn Jackson tender was 14 days past the cut off date and was dated 10/10/07. The time lapse from the 26/07/07 to the 10/10/07 was 10 weeks and then it took a further 5 months before the contract began?
Can a 9 month period be considered as an emergency, acceptable period of time which allows none or minimal consultation?
Case Law
Daejan Investments Limited (“Daejan”) is the freehold owner of a block of flats and shops in Muswell Hill, London. Daejan gave notice to the lessees that it intended to carry out major works costing £270,000. Although Daejan had given notice to the Lessees of its intention to carry out the works, the Lessees contended that Daejan had not properly complied with its statutory obligations and could not recover all of its outlay.
Section 20ZA of the 1985 Act provides landlords with an opportunity to apply to the LVT as was, now, First Tier Tribunal(FTT) prior to carrying out major works and/or consulting the tenants. This right was introduced in 2003 by the Commonhold and Leasehold Reform Act 2002, and it allows the FTT to remove some or all of Section 20 consultation requirements if it is reasonable to do so.
Where landlords have not complied with the relevant consultation provision, the amount they will be able to recover from a leaseholder will be capped at the relevant cost threshold (at present £250 for major works and £100 for qualifying long-term agreements).
In order to alleviate any potential problems there is power to dispense with the consultation requirements.
IS DISPENSATION LIKELY TO BE GRANTED?
The case of Daejan Investments Limited v Benson and Others [2011] EWCA Civ 38 should be a warning to all landlords to make sure that they comply with the statutory consultation requirements in respect of service charges.
In the case the Court of Appeal found for the lessees. In its decision the court:
•Confirmed that the financial consequences of the grant or refusal of dispensation are irrelevant to the exercise of discretion under section 20ZA;
•Held that significant prejudice to the leaseholders is a fundamental consideration in exercising the discretion to dispense;
•Emphasised the importance of the consultation requirements and that any failure to comply (unless of a minor or technical nature) amounts to significant prejudice;
•Held that a landlord’s offer to apply a discount to the costs claimed from the leaseholders is not a ground for the grant of dispensation.
CONSEQUENCES OF THE COURT’S DECISION
From this determination it is clear that dispensation will be granted only very rarely in cases where the tenants have been prejudiced by the landlord’s failure to properly consult them.
It appears from this decision that there will only be limited circumstances where landlords can gain dispensation going forward. One of these is where works need to be carried out urgently due to an emergency situation.
So again we ask is 9 month wait for emergency works, considered as a reason not to consult?
This question has been asked of Janet Entwistle and Chris Owens but again they have failed to give any response.
At last a higher Court has stated ( clearly and simply) what I have been banging on about for years: para 29 “the real protection is s19”. That is what will help those of you with complaints over the warden systems and other costs.
Now you have this quote from the Court of Appeal. Cry havoc etc
AM, thank you for the comments regarding the protection given by S19 I will look this up, but would appreciate a précis of its importants regarding Call Systems, does this include Fire Systems as well?