Service charge consultation—no £250 limit for advance payments (23 Dollis Avenue (1998) v Vejdani)

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What are the statutory residential service charge requirements; when do they apply and what are the practical implications of this case?

The £250 recovery limit for residential service charges, where the statutory consultation requirements have not been complied with, does not apply to payments by way of service charge requested in advance for intended works. It was open to the landlord in question to correct the lack of compliance —here, insufficient estimates.

What was this case about?

Landlord and Tenant Act 1985, s 20.

The case related to the statutory consultation requirements for residential service charges. A landlord must consult with its tenants before:

  • carrying out major works to its building (where each tenant's contribution will exceed £250), or
  • entering into a long-term agreement to provide services (eg property management) where the cost to each tenant will exceed £100

Where works of repair, maintenance or improvement involve costs requiring each tenant to pay more than £250, the landlord must follow the two-stage consultation procedure.

The landlord must serve notice on the tenants. The notice must:

  • describe the proposed works in general terms (or specify a place and time where a description can be inspected)
  • state why the landlord considers it necessary to carry out the works
  • invite written observations and provide an address and a timescale for receipt, and
  • invite the nominations of parties from whom the landlord should obtain estimates

The tenant must be given 30 days from the date of the notice in which to submit observations and to suggest alternative contractors. The landlord must then obtain at least two estimates for the work, one from a contractor wholly unconnected with the landlord.

The landlord must obtain an estimate from any contractor that a tenant has nominated.

The landlord must then prepare a statement for at least two of the estimates, setting out the estimated costs of the works and providing a summary of the observations received together with its response. Any estimate that the landlord has obtained from a contractor nominated by the leaseholders must be included in this statement.

The statement must be attached to a notice and sent to the tenants. The notice details where and when all estimates may be inspected and invites each tenant to make written observations, to which the landlord must have regard. It must also specify an address to which any observations should be sent and the timescale for doing so (30 days from the date of the notice).

What was the main issue involved?

It was not in dispute that:

  • the landlord had complied with the obligation to give a notice of intentions to carry out the works
  • the tenant did not identify any contractors from whom the landlord was to attempt to obtain estimates

However, the landlord had not complied with the obligation to provide a statement setting out the estimated costs of the works. The amounts specified in the statement were not the estimated cost of just the proposed works. They included additional works.

The issue was whether this limited the landlord to recovering £250 as an amount in advance in respect of the works.

What did judge decide?

The judge confirmed that:

  • the limitation to the contribution payable by the tenant is referable to costs incurred by the landlord in carrying out the work rather than in respect of work to be carried out in the future—this was clear from the wording in sub-sections 20(2) and 20(3) of the Landlord and Tenant Act 1985 (LTA 1985)
  • there was, otherwise, no statutory limit to the amount that could be recovered by way of an account on demand under the lease other than under LTA 1985, s 19(2)—this provides that where a service charge is payable in advance, the amount payable must be reasonable. The test for reasonableness is the same as in LTA 1985, s 19(1) for paying the service charge generally. It is a two-stage test as to whether the:
    • decision making process was reasonable
    • the sum to be charged is reasonable in the light of the evidence
  • therefore, it was not necessary that there should be a valid consultation process before a sum in excess of £250 could be recovered by way of a service charge in respect of intended works—the statutory limits only applied to claims where work has been carried out and the consultation requirements have not been complied with
  • the failure to comply with the consultation requirements may be relevant to the reasonableness of the amount to be paid under LTA 1985, s 19(2) as advance service charge—however, it was simply a factor to be taken into account

To what extent is the judgment helpful?

The judge identified the following factors in assessing whether the first part of the two-stage reasonableness test had been satisfied:

  • the works specified in the original notice needed to be done—there was no basis for delaying them
  • it could not be said that an application for an advance payment of service charge was premature
  • it was true that the landlord had not complied fully with the consultation procedure, but it had attempted to do so
  • on the other hand the tenants had not engaged seriously with the process at all—they had not proposed alternative contractors, nor commented on the estimates

The judge confirmed that the current failure to comply with the consultation requirements was by no means fatal to the landlord's claim for reimbursement of the sums expended on the works. It was open to it to obtain further estimates in the light of this decision. Therefore, it was reasonable for there to be a payment of an advance service charge.

Southall Court (Residents) v Tiwari [2011] UKUT 218 (LC)

Property disputes lawyers should take note when advising tenant clients. The judge agreed with the judge's comment in Southall where he emphasised:

'the need for tenants who are unhappy about the proposed works to make their concerns known to the landlord within the appropriate period. In the absence of such objections the landlord is entitled to conclude there is no serious objection to the proposed works.'

Case details

Court: Upper Tribunal (Lands Chamber); Judge: His Honour Judge John Behrens; Date of judgment: 16 August 2016

Filed Under: Property

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