This is a frequent issue. A landlord or management company embarks upon a course of works, having undergone the statutory consultation procedure, to discover once the works have commenced that the specification will need to change and, often, the costs increased from those initially consulted upon. In the recent case of Reedbase -v- Fattal [2018] EWCA Civ 840, the Court of Appeal was asked to consider whether the landlord was required to re-consult in these circumstances.

Background

The case concerned an apartment block overlooking Regent’s Park. Repairs were required to the asphalt roof under the terrace adjoining two penthouse flats. During the course of the works, it was discovered that the proposed method of bonding the new tiles onto the asphalt would invalidate the contractor’s guarantee in relation to the roof sealant. As a result, the specification of works was changed such that the new tiles would be fixed by a pedestal system. This resulted in an additional cost of approximately £30,000 on works worth over £300,000.

There was no dispute over the first stage consultation or that the leaseholders had been given sufficient information regarding the proposed works. However, the second, tender stage of the statutory consultation did not refer to the pedestal system. The tenants of the penthouse flats therefore complained that Section 20 consultation procedure was defective and their liability limited.

The Court of Appeal’s decision

The Court of Appeal disagreed and decided, on the facts of the case, the landlord was not required to re-consult when the specification of works changed.

The Court decided that the relevant test as to whether a fresh set of estimates must be obtained, in the absence of any relevant statutory guidance, is whether in all the circumstances the leaseholders have been given sufficient information by the first set of estimates.

This involves comparing the information provided about the old and new proposals on an objective basis. The Court found that there was no material change in the information provided by the stage 2 consultation, and the additional cost of the pedestal system over what had previously been proposed was not the only relevant factor.

The Court went further to say that it must be considered, in all the circumstances, whether the protection to be accorded to the leaseholders by the consultation process was likely to be materially assisted by obtaining the fresh estimates.

On the facts of the case, the Court found that fresh estimates would not assist, because :-

1. The leaseholders knew about the change in the works and approved it. This was not a case where the landlord was seeking to ambush the leaseholders by doing some fundamentally different set of works from that originally proposed;

2. The change in cost was relatively small in proportion to the full cost of the works;

3. It was unrealistic to think that the contractors who had estimated for the full works, but who had not obtained the contract, would be likely to tender or hasten to tender for a small part of it (the supplying and fixing of the tiles using the pedestal method). Further, there was no evidence that there would have been any saving in costs by obtaining a fresh tender;

4. The re-tendering process would have led to delays which may have prejudiced the other leaseholders; and

5. The leaseholders nonetheless retained the ability to challenge the reasonableness of the costs under Section 19 of the Landlord and Tenant Act 1985.

In its judgment, the Court of Appeal reiterated the purpose of the consultation regime, as set out in the previous Supreme Court decision of Daejan -v- Benson [2013] UKSC 14, which declared the process to be “a means to an end and not an end in itself and the end …… is the protection of tenants in relation to service charges”. The purpose of the consultation procedure is as a means of protection for leaseholders so that they are not required to pay for unnecessary services, services provided to a defective standard, or to pay more than they should for services which are necessary and are provided to an acceptable standard. The Supreme Court confirmed in the Daejan decision that the consultation requirements leave untouched the fact that it is the landlord who decides what works need to be done, when they are done, who they are done by, and what amount is to be paid for them.

Summary

The Court of Appeal’s decision turns on the specific facts of the case, particularly the nature of the works required, the additional costs for the change in specification, and the adequacy of the stage one consultation. Whether a landlord or management company will need to re-consult where there are changes to specification will always depend on the particular facts and circumstances.

However, it is refreshing to see the Courts adopting a practical and purposive approach to the consultation regime, particularly given that the complaining leaseholders knew what works were being done and had approved them. As the Court of Appeal decided that the section 20 consultation procedure was not defective, it was not required to consider whether the leaseholders could be ‘estopped’ or prevented from challenging the procedure in circumstances in which they had previously agreed to the works.

It is also interesting to see that, on the facts of this case, the Court considered that and increase in the total costs of less than 10% was ‘relatively small’, such that the leaseholders would not be materially assisted by the obtaining the fresh estimates. Again, this needs to be viewed in context of the works as a whole costing over £300,000, and it does not necessarily follow that a 10% increase will be the benchmark in all cases where the estimates increase.

Should you have any questions regarding this Legal Update, please contact Kevin Lever on 01435 897297 or Kevin.Lever@kdllaw.com.

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