In Aster Communities v Chapman and others [2021] EWCA Civ 660 (“Aster”), (see full judgment here) the Court of Appeal revisited the judgment handed down in Daejan Investments Ltd v Benson [2013] UKSC 14 (“Daejan”) and provided significant guidance on the approach to considering “some relevant prejudice” in applications to dispense with the consultation requirements under s.20 Landlord and Tenant Act 1985.

Our Legal Update from July 2020 “Dispensation and Section 20C Costs” discussed the previous decision in Aster by the Upper Tribunal before appeal to the Court Appeal. Additionally, our Legal Update from June 2019 called “Dispensation from Major Works Section 20 consultation” focuses on the decision in Daejan and provides more information on how the court looks at “prejudice” in considering an application for dispensation.

The History of the case in Aster

Where a landlord is planning “qualifying works”, where a sum of more than £250 is incurred by any leaseholder on periodic works or similar, the landlord must complete the legal consultation process as required under Section 20 of the Landlord and Tenant Act 1985 prior to the appointment of contractors.

The facts in Aster date back to March 2016 when the freeholder of Kingsway Gardens (a development comprising of 5 blocks of flats 114 of which are let on long leases), served the long leaseholders with Notice of Intention to carry out works on the development.

The Notice of Intention detailed numerous proposed works but it did not specifically refer to balcony resurfacing works, although there was provision for this work included in the price specifications which were available for inspection at the time. Balcony asphalt replacement was required to two of the 114 flats due to water ingress issues but no such issues were apparent in respect of other balconies.

Notwithstanding the above Aster elected to complete balcony asphalt replacement works not only on the two affected flats but also all other flats with balconies. There had of course been no consultation for those works.

In January 2017, Aster made an application to the First Tier Tribunal (FTT) under section 27A Landlord and Tenant Act 1985 for a determination of on account service charges required from the leaseholders. The FTT found the balcony asphalt works were unnecessary and, in any event, were not part of the section 20 consultation.

As a result of the FTT’s decision, Aster made an application for dispensation from the section 20 consultation requirements in February 2019. Several leaseholders objected to the application, stating that the lack of consultation prevented them from being able to obtain expert advice in relation to the necessity of the works, and they had therefore been prejudiced.

The FTT applied the principles from earlier case law - Daejan - which found that dispensation was subject to a test of whether the lessees would suffer any relevant prejudice as a result of the landlord’s failure to comply with the consultation requirements.

The FTT held that as the asphalt works had already been found to be unnecessary there was therefore a relevant prejudice to be considered if dispensation was to be granted. Whilst the FTT granted dispensation it placed upon that grant conditions that

• The landlord pay the costs of the lessees in obtaining a report to advise on the necessity of replacing the asphalt on all of the balconies at the development;

• Aster to pay the leaseholders' reasonable costs of the application; and

• That the costs of Aster's dispensation application should not be recoverable through the service charge.

Aster appealed the conditions imposed upon them to the Upper Tribunal, and then, having failed to over turn them there, to the Court of Appeal.

Court of Appeal’s Decision

The Court of Appeal in reviewing the position held that amongst other things, the conditions upon which dispensation was granted by the FTT were permissible, applying the principles set out in Daejan. The Court of Appeal also found that the section 20 consultation process was a group process which should involve all leaseholders within a block generally. If all leaseholders suffer prejudice because of a defect in the consultation process then there would be no reason why the FTT should not be able to make dispensation conditional on every leaseholder being compensated.

Aster’s appeal was accordingly dismissed, with the Court of Appeal applying the principles in the Daejan case and the same reasoning as the FTT.

Conclusion

This case highlights the importance of completing section 20 consultations correctly from the start, and that landlords need to consider whether their leaseholders are likely to suffer prejudice as a result of any failing therein. Dispensation since Daejan, whilst arguably easier to obtain, is by no means guaranteed and even if obtained may be subject to onerous and costly conditions.

Dispensation may be an appropriate solution in some circumstances, for example where works need to be completed as a matter of urgency, so there may be no time to consult. However, landlords should be aware of the potential conditions the Tribunal may impose when granting dispensation from the consultation requirements. This may be relevant where there is a dispute with leaseholders in relation to the works required.

As we advised in our June 2019 Legal Update, we always recommend that the Landlord in any instance at the very least seeks initial legal advice. Although, after that initial assessment, in many cases the application can then be run by the Landlord or the Managing Agent without the further input of lawyers and thereby keep costs to a minimum.

Should you have any issues relating to compliance with past or proposed Section 20 consultation or would just like some advice on the process and its requirements, then we will be happy to help.

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