Where Section 20 of the Landlord and Tenant Act 1985 has not been followed or there has been some other failure in the consultation process when it comes to the carrying out of qualifying works (see here), or qualifying works under qualifying long term agreements (see here), or the entering into of a qualifying long term agreement (see here), a landlord, RMC or RTM company can apply to the First Tier-Tribunal (“FTT”) for dispensation from the consultation requirements.

As explained in our previous Legal Update here, the FTT has discretion to attach conditions to the grant of dispensation. That is exactly what the FTT elected to do in the case of Holding & Management (Solitaire) Limited -v- Leaseholders of Sovereign View [2023] UKUT 174 (LC). However, unhappy with the conditions imposed, the landlord appealed the FTT’s decision to the Upper Tribunal (“UT”), which agreed the conditions imposed were irrelevant and overturned the FTT’s conditions.

Background

The case concerned a Thames riverside gated development made up of 174 flats and houses grouped around five squares. Holding & Management (Solitaire) Limited (the landlord) had commissioned a fire risk assessment in June 2020, which identified concerns about fire stopping and recommended a further assessment be undertaken. The risk was identified as level 4 meaning that action was recommended within 3 months.

Over a year later, in July 2021, another fire risk assessment was carried out, which reported inadequate fire stopping in the risers and loft spaces. It recommended that “as a very short term measure” an immediate waking watch be put in place, or alternatively simple battery linked smoke detectors be installed in each flat, with a longer term view to installing a fire alarm system across the estate. In response, the landlord put in place a waking watch at a cost of £10,000 per week (paid for via the service charge reserve fund), and began the consultation process for the recommended fire alarm system. Whilst the landlord obtained a number of tenders, the consultation process went no further and the landlord accepted the lowest tender for the work. The rationale given by the landlord was that it intended to apply to the FTT for dispensation for the fire alarm, and dispensation should be granted due to the urgency of the works and so the landlord could put an end to the expensive waking watch provision.

The decision of the FTT

Whilst the FTT granted dispensation, it was critical of the landlord’s decision to put the waking watch in place (which in total was for a period of 3 months), without considering alterative options. The alternative of battery operated alarms would patently have been a lot cheaper. The FTT accepted that waking watch had been the “go to” solution for many landlords concerned about the immediate risk of fire, usually caused by inappropriate and dangerous cladding, but that was not the case here (the risk being due to compartmentalisation and fire stopping).

The FTT was also critical of the delay in the landlord investigating matters following the June 2020 fire risk assessment, saying that if it had investigated within the 3 months initially advised the remainder of the year could have been used to carry out a proper consultation, and some consultation might have been carried out on the waking watch costs (although accepting a full Section 20 consultation was not required for those costs). The FTT said this was not a case where the leaseholders could be criticised for failing to put forward cheaper suppliers for the waking watch; it was questionable whether the waking watch was required at all when there were much cheaper alternatives.

Therefore, whilst recognising the fire safety works (installation of the new fire alarm system) had to be carried out notwithstanding the failure by the landlord to consult, the FTT granted dispensation conditional upon the costs of the waking watch being funded by the landlord and not through the service charge. The FTT also made dispensation conditional upon a Section 20C order, preventing the landlord charging its costs for dealing with the proceedings to those leaseholders joined to the application, through the service charge.

The UT’s decision

In considering the landlord’s appeal, the UT stressed the now well established test for the FTT to apply when considering to grant dispensation, following the Supreme Court’s decision in Daejan Investments Limited -v- Benson [2013] UKSC 14, namely “whether the leaseholders would suffer any prejudice as a result of the failure to consult”.

The landlord’s position was that the cost of the waking watch was not relevant prejudice, as it was not caused by the failure to consult. By contrast, the leaseholders argued that the waking watch was part and parcel of the set of works, as the FTT had put it, and stressed their concerns regarding the delays in the fire risk assessments being undertaken and the rush to put the waking watch in place without any consultation with leaseholders. They said that, even if Section 20 consultation was not legally required for the waking watch costs, it was nonetheless good practice. They said that the landlord had then used the waking watch as a justification for its failure to consult. Had the landlord taken action as advised in June 2020, there would have been ample time to consult. Further, the imposition of the waking watch immediately after the July 2021 risk assessment was premature and unnecessary.

In response, the landlord said that the work was commissioned for the new fire alarm system almost immediately after the tenders were obtained, and on the basis that the chosen contractor could complete the work much sooner than the others. Allowing time for a full consultation on the new fire alarm system, any saving in choosing a different contractor would have been wiped out by the continuing waking watch costs.

The UT agreed with the landlord and said that even if the FTT had found the waking watch to have been unnecessary (and no finding was made to that effect), that would not have been justification to refuse dispensation. The prejudice must arise from the lack of consultation rather than any other reason. Any conditions must be relevant and appropriate, to address the relevant prejudice to the leaseholders.

The UT said that it is not the role of the FTT in considering a dispensation application to penalise the landlord for other aspects of its conduct. A claim that the waking watch was unnecessary would be relevant to a challenge to the service charges under Section 27A of the Landlord and Tenant Act 1985, but not the application for dispensation. Equally, a condition relating to payment for the waking watch was an irrelevant condition. The UT therefore set aside that part of the FTT’s decision.

The UT also set aside the Section 20C order, given that the basis for that order was the same as the decision to impose the (irrelevant) condition requiring the landlord to fund the waking watch costs. In considering whether or not a Section 20C order should be made on other grounds, the UT said it was not convinced that it would be appropriate to deny the landlord of its contractual right to recover its costs through the service charge, where the leaseholders suffered no relevant prejudice from the failure to consult.

The UT said it was clearly sensible and in everybody’s interest to get the fire alarm system installed and in that sense the application for dispensation was not a “petition for an indulgence” by the landlord for its failure to consult, but a matter of practical importance for all concerned. Therefore the UT declined to make a Section 20C order on any other grounds.

Conclusion

The UT’s decision was clearly the right one. Whilst the UT had sympathy with the leaseholders’ complaints including over the landlord’s delays in responding to the recommendations from the June 2020 fire safety report being implemented, the decision reiterates that whether dispensation should be granted and what conditions should be imposed will come down to the question of relevant prejudice. The financial loss suffered by the leaseholders as a result of the waking watch costs was simply not relevant prejudice caused by the failure to consult.  This was a separate matter.

The UT stressed that the decision did not affect any leaseholder protections afforded under the Building Safety Act 2022 exempting any leaseholders from payment of the costs for relevant building safety measures, should it be the case that any of the buildings qualified as a “relevant building” within the meaning of the Act.

For more information or queries on this week’s Legal Update, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The 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.

If you have received this update in error or wish to unsubscribe from future updates then please email us at info@kdllaw.com.