In our April 2019 Legal Update “Should Landlords/Managing Agents serve Section 20 Notice on Lessees in breach?”(see here), we gave information on whether Landlords should serve a Section 20 Notice on any Leaseholder who was in breach of the terms of their lease, be that for unpaid charges or some other non monetary issue and whether or not the matter was with or had not yet been transferred to the client’s legal advisers for enforcement. In this update we focus on when the Section 20 process might be dispensed with.

Where a Landlord or Management Company proposes to undertake a project of works to a building, recovering the costs as a service charge, and any single Leaseholder’s respective proportion of those costs exceed £250, that Landlord or Management Company must either:

1. Comply with and complete the statutory consultation process prescribed under section 20 Landlord and Tenant Act 1985; or

2. Obtain dispensation from that requirement to consult from the First Tier Tribunal (Property Chamber) (“FTT”).

If the Landlord fails to comply with the Section 20 consultation procedure, no matter how small the error, the Leaseholders’ contribution can be capped at £250 only, irrespective of the actual costs of the works, and the Landlord or Management Company may be prevented from recovering the remainder from them.  This can lead to a significant shortfall which the Landlord will have to meet.

In certain circumstances, however, the FTT can order that the consultation requirements can be dispensed with.

An application will need to be raised of the FTT pursuant to section 20ZA Landlord and Tenant Act 1985.  These applications might be appropriate in the following scenarios:

• Where the works are so urgent that the Landlord does not have time to consult; or

• Where the Landlord has made a mistake during the consultation process and thus actual compliance is, or may be, subject to challenge.

In a leading case on dispensation, Daejan Investments Limited v Benson and others [2013] UKSC 14, on appeal from [2011] EWCA Civ 38, the Supreme Court ruled that the only factor which is relevant in deciding whether to grant dispensation from Section 20 is the financial prejudice that the Leaseholder has suffered as a result of the Landlord’s failure to consult properly, and it is down to the Leaseholder to show such losses.

In addition, the FTT will expect a Leaseholder to suggest what observations they would have made if they had had all the information available at the relevant time, i.e. prior to the commencement of the works. If dispensation is granted, the Leaseholders will have to pay, through the service charge, the full cost of the works, less any sum that the FTT consider were subject to prejudice.

Some might consider that this approach does not seem very fair on Leaseholders, who are often the innocent party.  If the Landlord is at fault, why should the Leaseholder be faced with the burden of proving they have suffered a loss?  In an attempt to promote fairness, the Supreme Court remarked in the Daejan case that once the Leaseholder had made a reasonable case for prejudice, they should be given the benefit of the doubt and it would be for the Landlord to disprove the Leaseholder’s case.

It is important to note that if it chooses to grant dispensation, the FFT can attach to that order whatever conditions it sees fit. Commonly, where the Landlord has simply not complied, either properly or at all, these available conditions will include an order that the Landlord pays the Leaseholder’s legal costs of dealing with the dispensation application.  Such conditions might also include any other relevant factors which the FTT decide.

Conclusion

It is fair to say that most professional Landlords and Managing Agents are now fully aware of, and will have standard procedures to ensure full compliance with, the requirements of the Section 20 consultation process and when it is required.  That said, we are still consulted regularly by both Landlord and professional Managing Agents whose Section 20 process has gone wayward in some way.

The short answer is to always ensure full compliance with the statutory process.  Where that cannot or has not been done, for what ever reason, the Landlord or Managing Agent should seek competent legal advice on whether to address the issue and how to go about that. If an application for dispensation is required/advised then it is generally better (but by no means essential) for that application to be made prior to the commencement of the works. However, as is the case with many dispensation applications, the realisation or issues often arise only after commencement or completion of the works. 

We would recommend (as you would expect us to) that the Landlord in any instance at the very least seeks initial legal advice. Although after that, in many cases the application can then be run by the Landlord or the Managing Agent without the further input of lawyers, to 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, then we will be happy to help.

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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