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Case law: Court of Appeal narrows scope of residential landlords’ and agents’ obligation to consult before works

Landlords of a residential building need only consult with leaseholders in advance in certain circumstances, the Court of Appeal has ruled. They are required to do so only where total service charges per leaseholder arising from a discrete set of ‘qualifying works’ could be more than £250 (not if the aggregate charges of other qualifying works over a year exceed £250).

Legal Alert

This update was published in Legal Alert - December 2014

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Owners of a holiday camp made significant improvements to the site, spread across several projects, which benefited leaseholders of chalets on the site. Each project resulted in a service charge for leaseholders of less than £250 each, but the total service charges across all the projects for the year was more than £250 each.

Residential landlords (or their managing agents) are required by law to consult with leaseholders before carrying out ‘qualifying works’ that would result in a service charge of more than £250 per leaseholder. If they do not, the landlord cannot recover more than £250 per leaseholder, no matter how much the qualifying works actually cost.

The improvements in this case were qualifying works, but the leaseholders were not consulted first. The owner argued that he was not obliged to consult because each project resulted in a service charge of less than £250. He relied on previous rulings that the obligation only applied if the service charge from ‘one set’ of works would exceed £250 per leaseholder.

The High Court disagreed and said the obligation to consult was triggered if the cumulative, overall spend on qualifying works in a year by a landlord could result in a service charge of more than £250 per leaseholder. It did not matter if the charges arose from several different sets of qualifying works, rather than just one.

However, this ruling created practical problems for landlords and managing agents who carried out one set of qualifying works without being required to consult with leaseholders, but then had to carry out further, unforeseen qualifying works during the year which pushed each leaseholder’s service charges over the £250 threshold.

The Court of Appeal has now overruled the High Court decision. The obligation to consult only arises if a particular, discrete set of qualifying works could result in service charges of more than £250 per leaseholder. The fact there might be other sets of qualifying work in the same year, and the total aggregate service charges from all of them could exceed £250, is irrelevant.

The Court gave useful guidance on when qualifying works amount to a discrete set of works for this purpose. It said that this will be a question of fact and degree in each case, but should be decided in a common sense way, given factors such as:
  • Where within a site the work is to be done.
  • Whether all the works are contracted for in the same contract.
  • Whether different parts of the work are to be done at (or roughly at) the same time.
  • Whether different parts of the work are similar or different in character from each other.
  • Whether different parts of the work have a connection with each other or not.

Operative date

  • Now

Recommendations

  • Landlords must ensure they know whether proposed qualifying works amount to one ‘set’ of works, or more than one.
  • They must then work out the total likely service charge per tenant of each set of qualifying works.
  • If any set of works may result in a service charge of more than £250 per leaseholder they must consult with leaseholders first.
  • However, they no longer need to consult on the basis that the total aggregate service charges from different sets of qualifying works carried out in the same year, whether foreseen or not, might exceed £250.

Case ref: Philips and Others v Francis [2014] EWCA Civ 1395

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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