This article reviews the following case: Upper Tribunal (Lands Chamber) – Leaseholders of Foundling Court and O’Donnell Court v The Mayor and Burgesses of the London Borough of Camden and Others, 25th July 2016 ([2016] UKUT 0366 (LC)). We will assess how this decision affects the law surrounding statutory consultation under Section 20 of the Landlord and Tenant Act 1985.
The Facts
This case concerned the owners and residents of Foundling Court and O’Donnell Court, both parts of the Brunswick Centre, London, WC1. Allied London (Brunswick) Limited (“Allied London”) owned the freehold of the Brunswick Centre in 2005. The London Borough of Camden (“Camden”) owned a 99 year intermediate headlease of Foundling Court and O’Donnell Court (“the Headlease”), under which the 49 leaseholder Applicants held long-leases of individual units in the blocks. The Applicants were required to contribute a service charge towards costs incurred by their immediate landlord, Camden, which in turn, was required to contribute to Allied London’s costs under the Headlease. Allied London undertook major works to the Brunswick Centre in 2005. These works were ultimately unsuccessful and subsequent freeholders have had to undertake various bouts of remedial work since 2005 to keep the estate in repair. Allied London made a service charge demand of Camden for the full costs of the works, which Camden duly paid. In turn, Camden made an interim demand of the leaseholders for part of their respective share of the costs. When it became clear that the works were of an unsatisfactory standard, Camden told leaseholders they were not required to pay the balance of the cost of the work until these issues had been addressed. Camden was therefore left out of pocket for a considerable portion of the repair costs, having already paid in full to Allied London. Eventually, the remedial works were completed and the balance of the charges sought from leaseholders by Camden. # In response, the leaseholders applied to the FTT under s.27A of the 1985 Act, seeking a determination as to the reasonableness of the costs of both the 2005 works as well as the subsequent remedial works. One of the key arguments for these sums being unreasonable was that the leaseholders had not been sufficiently consulted under s.20 of the 1985 Act. This raised a preliminary question before the FTT of whether Allied London, as superior landlord, was required to consult with individual leaseholders (who ultimately would be responsible for funding the works) or if it was only required to consult with its contracted tenant, Camden, as head lessee. Allied London had consulted Camden in June 2004 in respect of the 2005 works but not the Applicant leaseholders. Camden had, in turn, forwarded copies of the s.20 notices to the leaseholders but this resulted in the leaseholders receiving less than the minimum 30 days in order to make observations. As the question of who was required to consult was of general public importance and had far-reaching implications for block management, it was referred to the Upper Tribunal (“UT”) for determination as a preliminary issue in the proceedings.
The Decision
The UT found that Allied London, as superior landlord, was required to consult with both Camden and the Applicant leaseholders before undertaking works. The Tribunal rejected arguments from Allied London that, as it had no contractual relationship with the individual unit tenants, it was only required to consult with its tenant, Camden. The UT considered the purpose for the s.20 consultation process was to give those who were ultimately responsible for paying for works the opportunity to be involved in the decision-making process. Fundamentally, Parliament intended to protect those paying the bill from having to pay more than necessary or reasonable for works projects. In failing to consult the Applicants, Allied London had denied them the chance to contest the works and this fundamentally frustrated the intended purpose of the legislation. The UT also considered whether the burden to consult leaseholders fell on Allied London or on Camden as the leaseholders’ immediate landlord. The UT had regard for the wording of the 1985 Act as well as Part 2 of Schedule 4 of the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the 2003 Regulations”) which set out the consultation procedure. They concluded that the relevant “landlord”, for the purposes of carrying out the consultation, was the landlord who “intends to carry out qualifying works”. The UT determined that this must, on its ordinary meaning, be the landlord who was actually intending to undertake the work, in this case Allied London. Camden had no intention of carrying out work; it only intended to collect contributions from leaseholders for works to be undertaken by Allied London. Camden could not be the landlord “intend[ing] to carry out qualifying works” for the purposes of the 1985 Act and was therefore not responsible for consulting leaseholders. The relevant landlord remained Allied London, despite there being no contractual landlord and tenant relationship between Allied London and the Applicants. The UT then considered whether the leaseholders, as sub-tenants, were entitled to be consulted as “tenants” under the legislation. They determined that where paragraph 1(1)(a) of the Schedules of the 2003 Regulations require the landlord to give notice to “each tenant”, the proper legal weighting of the word “each” implied any and every lawful tenant (or sub-tenant) with an interest derived under the landlord’s and who would be required to contribute to the costs of the works. The UT held this reading was in keeping with the underlying intention of Parliament to protect leaseholders alluded to above. The UT therefore determined that Allied London had failed to consult the Applicants with respect of the 2005 works with the result that, on referral back to the FTT, the Applicants could claim a maximum individual contribution of £250 to the costs of those works.
The Impact
The impact of this decision is that superior landlords are now required to consult with all of their direct tenants and their tenants’ sub-tenants if those sub-tenants are to be liable to contribute to the costs of the works beyond £250. The duty to consult, as set down in the 2003 Regulations, requires that each tenant be served the appropriate notices; namely, a Notice of Intention to Carry Out Qualifying Works, A Notification of Estimates and a Notification of award of contract. These notices need to be served on tenants by post, or by being either left at or affixed to the door of their premises. Service by post is likely by far the most practical option and, as the legislation does not deal specifically with service requirement, there is no burden on landlords to prove receipt of notices by tenants, only that the notices have been sent. Proving such a burden will be on the balance of probabilities so, provided the landlord retains a copy of the notice addressed to the correct unit address, there will arise a presumption that the notice has been served. What is clear from the decision, however, is that it is the superior landlord’s duty to serve the notices, rather than that of any intermediate landlord. To date, it does not look as though this case has been taken to the Court of Appeal and the deadline for doing so likely expired in September 2016. It is possible Allied London may still obtain permission to appeal out of time, if sought, but it looks as though this decision will be binding for at least the medium term. Considering the legal commentary surrounding this case, the consensus is clear among property barristers and solicitors that this decision represents a new approach to the legislation; albeit a new interpretation of existing authority, rather than new law. The effect of this decision is retroactive in the sense that any challenge from sub-tenants that can still be made of service charges involving historic s.20 consultation by a superior landlord will now be decided by the Tribunal in light of this new interpretation. This may be of concern to superior landlords who have not previously consulted sub-tenants as the limitation for challenging reasonableness of service charges can be between 6 and 12 years depending on the lease terms. Both superior landlords and intermediate landlords who have paid their contribution to works under a headlease could, in theory, face claims from sub-tenants who have not been historically consulted, limiting their contribution to works to a maximum of £250. The prevailing advice is that superior landlords now need to take steps to consult sub-tenants directly (i.e. without reliance on an intermediate landlord), despite the additional administrative burden incurred.