You will all no doubt be familiar with the obligation of a landlord/RMC/RTM to consult with leaseholders ahead of contracting for any major works or qualifying long term agreements, and will have seen our run of three articles here, here and here on the statutory processes to be followed to comply with those consultation requirements set out at s.20 Landlord and Tenant Act 1985 (“LTA1985”). 

You may also be aware that where the s.20 procedure is not followed, the Court or Tribunal have the power to limit the leaseholder’s liability to just £250, no matter the actual costs of the works.

However, when an error occurs, s.20ZA LTA1985 provides that an application can be made to the Court or Tribunal for dispensation from the s.20 process thereby enabling full recovery of the costs of the works, despite the error or failure to properly consult.  Such an application for dispensation can be refused and the decision of the Supreme Court in Daejan Investments Ltd v Benson [2013] UKSC 14 established that such refusal may result where the leaseholders can satisfy the Court or Tribunal that they have suffered “relevant” prejudice as a result of the landlord’s error (see our Legal update here).

In the case we cover in this week’s Legal Update, Mayor and Burgesses of the London Borough of Lambeth v Kelly & Ors, an appeal in the Upper Tribunal, the question as to whether the prejudice suffered by the leaseholder(s) was “relevant” prejudice such to preclude the landlord from obtaining dispensation.

The Facts    

The Landlord in this matter was the London Borough of Lambeth (“LL”) who owned a Victorian house converted into five flats.  Three of the flats were let on long leases and two were retained and let by LL on secure tenancies.  In 2016 a leak was reported from the roof and some time later it was repaired by LL.   The cost of the works totalled £7,882 and each leaseholder was liable for around £1,500.  Accordingly, s.20 consultation was required.

LL claimed to have sent s.20 notices but only to the flat addresses, notwithstanding that they were aware that the leaseholder had an alternative address for service.  There were a number of other issues with the s.20 notices, the manner in which the service charges were demanded and, generally, the conduct of LL, all of which amounted to a pretty poor show by LL. 

The three long leaseholders applied jointly to the First Tier Tribunal (“FTT”) for a determination under s.27A LTA1985 that their liability for the costs of the works should be limited to £250, the statutory maximum, as a result of the failings of LL in its compliance with necessary s.20 consultation.  In July 2021 the FTT ruled in favour of the leaseholders.  LL did not make an application for dispensation in its reply to the leaseholders’ claim, nor did they appeal the FTT’s decision.

Instead, a month later, in August 2021 LL made an application to the FTT for dispensation from the consultation process under s.27ZA LTA1985 in respect of the works.  LL took the following points:

1. That notwithstanding the earlier FTT ruling under s.27A, LL was entitled to make a separate application for dispensation; and

2. That the leaseholders had not, and would fail to, show that they had suffered any actual prejudice from LL’s failure to consult, and that outcome is sufficient for the application for dispensation to be granted.

The FTT’s decision in the first instance

In considering the application, the FTT took the view that LL was precluded, by virtue of the FTT’s earlier decision on its failure to properly consult, from making now a separate application for dispensation (which would, of course, have the effect of overturning the earlier success of the tenants in the FTT).  Further, that LL’s conduct both during the period in which consultation should have been undertaken and thereafter in failing to respond in a timely manner, or at all, to reasonable questions raised by the leaseholder, had been prejudicial.

The Appeal by LL to the Upper Tribunal

LL appealed to the Upper Tribunal (“UT”) and the case was heard in October 2022.

The UT found that (our emphasis added) : “there was a wholesale failure to comply with the section 20 process. The requisite notices were either not served at all or not served until after the works had been completed. The lessees were not informed that the costs had been incurred until about 18 months after they had been demanded by the contractor. Despite making inquiries of the [LL], [the leaseholder] was not provided with a copy of a section 20 notice until 2019, nearly two years after the works were carried out. She was also not provided with more detailed information until 2021.

I have no doubt that [the leaseholder] is aggrieved about the way in which the issue of the cost of the works was handled by the [LL]. She should have been notified about the works before they took place and she should have been provided with information about the works without having to enter into lengthy correspondence with the council. The [LL has] specific duties under section 18-30 of the 1985 Act which have been disregarded.

However, there is no evidence of actual prejudice. The prejudice identified as a consequence of being unable to budget is disregarded and what is left is in my view insufficient. Even accepting that [the leaseholder] was hampered in demonstrating prejudice by delay, I consider that it was still incumbent upon her to show some type of loss. For example, if she had shown that she had been asked to pay additional service charges because the works needed to be re-done or that additional unnecessary works had caused her inconvenience then that might have amounted to relevant prejudice. Even then, it might have been reasonable to give the council dispensation but on conditions.

Discussion

The decision is a useful one in that it confirms both that:-

1. A prior determination under s.27A LTA1985 in favour of the leaseholders does not preclude a landlord from seeking dispensation then or, importantly, later notwithstanding that the effect of that will be to amount to an overturning of the previous finding of the FTT; and

2. That it is incumbent upon the leaseholder to show and particularise actual loss/prejudice in any opposition to a dispensation application.  This appears (both by this ruling and that in Daejan Investments v Benson (see above)) to require prejudice in the form of financial loss as distinct from some other loss such as, as in this case, being hindered in planning of finances. 

Of course the correct advice is that you/your landlord/RMC/RTM clients should simply ensure that the proper s.20 consultation is undertaken in every case prior to the commencement of any relevant works and that questions raised by leaseholders are addressed fully and in proper time, such that applications by disgruntled leaseholders are minimised.  But then, we don’t live in a perfect world and circumstances will arise where dispensation applications are necessary.   In those circumstances where you are a leaseholder seeking to oppose such an application, for your opposition to have merit you must be able to show that there has been an actual financial consequence to you arising from the failure to comply with the consultation requirements.

For more information, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

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