Residential service charges are subject to a significant amount of statutory regulation and when a landlord is deciding what work it needs to carry out, there is a duty to consult with tenants where the amount of the contribution which each tenant is being asked to pay for each item or "set" of work will exceed £250. The relevant provision is found in section 20 of the Landlord and Tenant Act 1985 ("the Act")
In 2012 the High Court controversially allowed an appeal which reversed what had previously understood to be settled law in the interpretation of 'qualifying works' under the Act. What the High Court in effect said was a landlord would need to total up the cost of all the work it was to carry out, and if, when apportioned it exceeded £250 per lease, the landlord must follow the consultation procedure under the Act. If it did not the maximum amount the landlord could recover from each tenant would be restricted to the statutory cap of £250 per lease. In essence the court was saying that the cost of all service charge works carried out by a landlord would need to be aggregated.
The decision was potentially catastrophic in financial terms for landlords who had carried out work which exceeded £250 per lease where they had not complied with the consultation procedure. The landlord would have to pick up the shortfall between the cost they had incurred and the amount they could recover under the statutory cap.
This High Court decision was in contrast to the previous established practice, to identify individual 'sets' of qualifying works and apply the statutory cap to each set of work, rather than to an aggregate of the total cost of the work.
The High Court decision was appealed and came before the Court of Appeal at the end of 2014. The Court of Appeal has overturned the High Court decision and restored the previous settled position. The correct approach is to assess qualifying works in a common sense way, taking into account any relevant circumstances as to whether the works in question comprise a single set to which Section 20 consultation would be applied. Provided the amount apportioned to each tenant for each single set fall below £250, the need for consultation will not arise. The relevant factors to take into account are whether the works are physically linked, are being carried out under the same contract, are being done at the same time, whether they are different in character or have no connection with each other.
All service charge works still remain subject to the statutory protection that they must be reasonable and reasonably incurred, even if they do fall within the £250 limit.
If the works are qualifying works under Section 20 of the Landlord and Tenant Act 1985 then the basic rules on the consultation are:
- To serve a notice of intention to do the works which must be given to each tenant and any tenant association, describing the works, providing inspection facilities for the plan of works, stating the reasons for the work and specifying where and when observations and nominations for a possible contractor should be sent, and giving each tenant at least thirty days for their response. The Landlord must then have regard to the tenant's observations.
- The landlord must seek estimates for the works including from any nominee identified by the tenant or the tenants association.
- The landlord must issue a statement to the tenants and the tenants association providing two or more estimates, a summary of the observations and the landlord's responses, any tenant's nominee must be included within that statement. The statement must say when and where the estimates may be inspected and where and when any observations can be sent, allowing at least thirty days for responses. The landlord must have regard for the observations.
- Finally, unless the chosen contractor is one of the tenant's nominations or the landlord has gone for the lowest estimate, the landlord must within twenty-one days of contracting for the work, give a statement to each tenant and any tenant association, setting out his reasons. Rather than send the statement, the landlord may tell the tenant when and where their a statement may be inspected.
Should you have concerns or need advice in connection service charge demand, Fosters Solicitors specialist Property Litigation will be delighted to help you. Call the team today 01603 620508 or email firstname.lastname@example.org
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