Section 20 Consultation - Update

1. Section 20 Consultation - Update 19th June 2013 ARHM summer conference Nadeem Hussain

2. www.lease-advice.org Consultation?

3. www.lease-advice.org Why is S20 important? • Legal requirement • Qualifying long term agreements • £100 • Qualifying works • £250 • Ensure recovery of service charge expenditure • Better transparency/accountability to leaseholders • Lewison J in Paddington Basin Developments Limited v West End Quay Estate Management Limited [2010] • Involves leaseholders in decision making effecting their living space/investment

4. www.lease-advice.org Current legislative framework • Landlord and Tenant Act 1985 (as amended by s151 Commonhold and Leasehold Reform Act 2002) • The Service Charges (Consultation Requirements) (England) Regulations 2003 • Case law • Leasehold Valuation Tribunal • Lands Chamber of the Upper Tribunal • High Court • Court of Appeal • Supreme Court • Expected to become the 1st Tier Tribunal Property Chamber • (July 2013)

5. www.lease-advice.org Phillips v.Francis[2012] EWHC 3650 (Ch) • 21st December 2012 • The Chancellor of the High Court • Site in Padstow, Cornwall • Over 150 chalets on 999-year leases • Freehold acquired in April 2008 • Intention to bring site up to first-class standard • Almost three-fold increase in service charges

6. www.lease-advice.org Phillips v.Francis[2012] EWHC 3650 (Ch) • March 2010:Judgment of High Court, Truro District Registry • Chalet is a “dwelling” • Accounts rendered • For April – Dec 2008 • And to end of 2009 • 19th March 2012 • Truro County Court • None of 2008 and 2009 items individually/cumulatively amounts or amount to a single set of “qualifying works” • Appeal by leaseholders

7. www.lease-advice.org Phillips v.Francis[2012] EWHC 3650 (Ch) • What did the High Court decide? • Contrasted position pre-and post 2002 Act • Pre: limit based on cost of works • Post: limit based on amount of contribution payable • Common ground • No Section 20 consultation • Amount demanded >£250 per leaseholder • Issue: • Were intended works one set of qualifying works or • Could they be broken down into separate works? • Test in Martin v.Maryland Estates over – ruled for post – 2002 Act consultation

8. www.lease-advice.org Phillips v.Francis[2012] EWHC 3650 (Ch) “ Accordingly, all of them should be brought into the account for computing the contribution and then applying the limit. It may be that they should be spread over more than one year thereby introducing another limit. With that exception, the provisions relating to this service charge do not require any identification of ‘sets of qualifying works’ or the avoidance of ‘excessive fragmentation’.” • Implications?

9. www.lease-advice.org Implications • Binding: high court decision • Not new law but a new interpretation of legislation in place since 2003 • Potential new litigation on consultations since date in force • Increased burden on property managers • Consult even where works are unconnected if the £250 threshold is met • Difficult to deal with minor reactive maintenance works • Often urgent • Increased burden on LVT • Ultimately increased cost to leaseholders

10. www.lease-advice.org Daejan Investments Limited v. Benson and others • [2011] EWCA Civ 38 • Judgment dated 6th March 2013 • Dispensation from Section 20 declined by • Leasehold Valuation Tribunal • Upper Tribunal (Lands Chamber) • Court of Appeal • But allowed by the Supreme Court. • Dispensation granted on terms • 3-2 majority

11. www.lease-advice.org Daejan Investments Limited v. Benson and others • Queens Mansions, Muswell Hill N10 • Block of seven flats • Five on long leases • Major works planned for 2005 • Consultation started in July 2005 • Numerous errors in the process • Fait accompli ? • Costs involved • Around £280,000 • Breach Section 20 • Only recover £1250 (£250 x five)

12. www.lease-advice.org Daejan Investments Limited v. Benson and others • So what did the Supreme Court decide? • Consultation not an end in itself • Correct question: • Did leaseholders suffer relevant prejudice? • If so what relevant prejudice? • Dispensation granted on condition that • Aggregate liability of leaseholders reduced by £50,000 • Daejan pay reasonable costs of leaseholders in respect of LVT proceedings

13. www.lease-advice.org Daejan Investments Limited v. Benson and others • So what is the purpose of Section 20 requirements? • Prejudice is of overall importance • Ensure leaseholders protected from paying • For inappropriate works • Or more than would be appropriate • LVT has power to grant dispensation on certain terms and can impose conditions on granting it

14. www.lease-advice.org Daejan Investments Limited v. Benson and others • So what are the consequences of the Supreme Court’s judgment? • Does it blunt the impact of “Phillips v. Francis”? • Will you need to change your way of working and if so how?

15. www.lease-advice.org Implications • Daejan Investments Ltd v Benson & Ors [2013] UKSC 14 • Implications • Judgement gives wider powers to the LVT to dispense with the statutory consultation requirements • The LVT must adopt a proper approach when considering an application to dispense and can grant dispensation on certain conditions being met by the Landlord • Tenants will now find it much harder to avoid paying service charges based purely on technical or procedural errors

16. www.lease-advice.org The LEASE booklet • A guidance note issued by the Leasehold Advisory Service ("LEASE") contains helpful precedents for the various notices required under this procedure. The experience of this case suggests that landlords would be well-advised to pay close regard to them, rather than attempting to devise their own versions. • (Daejan Investments Limited v.Benson [2009]UKUT 233 (LC)

17. Questions? The Leasehold Advisory Service 020 7383 9800 info@lease-advice.org www.lease-advice.org Maple House, 149 Tottenham Court Road London W1T 7BN