As lawyers advising landlords, managing agents, RMC and RTM companies, not a day goes by that we are not providing advice on the consultation requirements under Section 20 of the Landlord and Tenant Act 1985 (“the Act”) and the associated Regulations in relation to any qualifying works, qualifying long term agreements or any qualifying works under qualifying long term agreements.

Whilst dispensation from the consultation requirements might be available under Section 20ZA of the Act where there has been a failure to consult or some failing in the statutory procedure, dispensation is never guaranteed. So our general advice is to ‘proceed at your peril’ if Section 20 has not been complied with or dispensation obtained before the contract for the works or services is entered into. You will recall from our previous guidance that there is no ability to contract out of the consultation process. For the above reasons it is generally seen that it will only be those cases where there is an urgent need for works to start (and therefore there is insufficient time to consult) that will justify an application for dispensation made retrospectively (e.g. after the contract for the works or services has been entered into).

This was the very question recently considered by the Upper Tribunal (“UT”) in the case of RM Residential Ltd -v- Westacre Estates Limited & Bellrise Designs Limited [2024] UKUT 56 (LC).

Background

The property in question was a mixed-use block in Cirencester, made up of commercial units on the ground floor and six residential units on the first and second floors.  RM Residential Ltd (“the landlord”)  purchased the freehold on 22 December 2020, although was not formally registered at Land Registry until 07 January 2022.

Westacre Estates Limited and Bellrise Designs Limited were two of the leaseholders in the block, owning between them three of the residential flats.

Shortly after purchasing the freehold, the landlord instructed engineers to inspect and report on the condition of the building. Historic movement was detected, said to have probably been caused by the removal of internal walls, and the engineer instructed that steelwork frames be installed. Further reports (from a company of which the director of the landlord company was also a director), concluded that “after decades of neglect the building was in a dangerously poor state of repair and there are several issues that must be rectified immediately”.

The landlord set about starting works to stabilise the property and carry out the works identified in the reports. In the course of those works, further problems were discovered and remedied. The works were substantially completed in September 2021 (with some asbestos removal finishing in 2023).

The landlord did not comply with Section 20, although it was recognised by the UT that it did not completely neglect them.  A notice of intention was issued, albeit after the work had started.  A notice concerning estimates for the works was also issued, albeit in September 2021 (by which time the works were finished, or nearly so).

The proceedings in the FTT

The landlord applied for dispensation in the First-Tier Tribunal (“FTT”) in January 2023. It was said that, due to the “emergency nature and unforeseen additional works”, the landlord was unable to comply with Section 20 prior to their commencement and completion.

Westacre and Bellrise objected, including on grounds that the landlord was not the freehold owner of the block (at the time the works were undertaken), due to the delays in registration of the transfer. This is also known as the ‘registration gap’, e.g. the time between purchase of a property and registration with Land Registry.

The FTT refused dispensation. Firstly, on the basis that the freehold transfer to the landlord had not been registered when the works were carried out (so it was not entitled to do the works and had no standing to apply for dispensation in the FTT). Secondly, because it was not satisfied that the works were urgent. The landlord appealed the FTT’s decision to the UT.

The UT’s decision

On the registration gap point, the UT overturned the FTT’s decision fairly swiftly. This was because, under Section 24(b) of the Land Registration Act 2002, a person is entitled to exercise the owner’s powers in relation to a registered estate if he is “entitled to be registered as proprietor”. So the UT found that the landlord’s right to take possession of the property and carry out the works (then apply for dispensation) could not be in doubt.

The UT also overturned the FTT’s decision to refuse dispensation on grounds that the works were not urgent, saying that :-

“The idea that if the works were not urgent the appellant had not established the "basic right" to a dispensation is a misconception. There is no requirement of urgency in section 20ZA. Nor, for that matter, is there a "basic right" to a dispensation; it is a matter of discretion; but to impose a precondition that is not in the statue is to exceed the bounds of that discretion.”

The UT stressed that the test for dispensation, deriving from the leading authority of the Supreme Court in Deajan -v- Benson [2013] UKSC 14, was whether any relevant prejudice had been suffered by the leaseholders by the failure to consult. Whilst urgency might be an example of a reason why a landlord might want to apply for dispensation, it was “abundantly clear” from Deajan that urgency is not a pre-condition for dispensation to be granted.

Insofar as prejudice is concerned, Westacre and Bellrise had not produced before the FTT any evidence of any relevant prejudice, only that they had been prejudiced by “criminal theft and damage” carried out by the landlord. Nor had they produced any evidence to support their claims as to the necessity for and the quality of the work. Therefore, in the absence of any prejudiced caused by the failure to consult properly, the UT said it was impossible to see any reason why dispensation was not granted by the FTT.

Conclusion

The UT’s decision is yet another example, over 10 years on, of the Tribunals applying the Supreme Court’s test of ‘relevant prejudice’ from Deajan.  As the UT concluded, whilst urgency for works might be reason for applying for dispensation, it is not a pre-condition or test for whether dispensation should be granted.  The test remains whether the leaseholders have suffered any ‘relevant prejudice’. An example given by the UT of the sort of prejudice that will have a bearing on whether dispensation is granted is where the leaseholders can show they would have been able to suggest a better or cheaper way of doing the work.

The UT’s decision is clearly the right one and will be helpful to landlords, RMCs and RTM companies who proceed with works where there is some failing in the Section 20 consultation (or a complete failure to consult), irrespective of the urgency of the works. However, the UT was at pains to stress that dispensation is not “merely a rubber stamp” exercise if the question of urgency is not a pre-condition. The UT recognised that applications for dispensation are not inexpensive, particularly once lawyer’s fees are factored in, and a conscious decision to go ahead without consultation and then seek dispensation later “would be a high risk strategy”, particularly given the severe consequences if dispensation is not granted.

The advice to landlords, RMCs and RTM companies therefore remains ‘proceed at your peril’ where the decision is taken to proceed with works or services without first having fully complied with Section 20 or applying for dispensation, irrespective of the urgency of the works. Whilst urgency isn’t a pre-condition for dispensation to be granted, the grant of dispensation is absolutely not a given.  Additionally, even where dispensation is granted, the FTT may elect to do so on unfavourable conditions for the landlord, RMC or RTM company (for example, see here).  Therefore, where possible, it is always going to be preferable to consult in advance and comply fully with Section 20, or otherwise apply for dispensation in advance before entering into the contract for the works or services.

If you have any queries on this week’s Legal Update, please contact a member of the team on 01435 897298 or info@kdllaw.com.

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