Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
The case was Various Occupational Leaseholders of Foundling Court and O’Donnell Court, Brunswick Centre, London v (1) London Borough of Camden (2) Allied London (Brunswick) Limited  UKUT 366 (LC) and others.
If you are an intermediate leaseholder, the responsibility for consulting your own leaseholders lies with the freeholder. In cases where there is an intermediate lease between the freeholder and the occupational leaseholder, the Upper Tribunal (Lands Chamber) has held that the consultation requirements in section 20 of the Landlord and Tenant Act 1985 (the “Act”) requires the freeholder to consult the intermediate leaseholder and the occupational leaseholder before carrying out “qualifying works” or entering into a “qualifying long-term agreement”.
Section 20 of the Act limits the service charges payable by a leaseholder in respect of “qualifying works” to £250 and for entering into a “qualifying long-term agreement”, to £100, unless the landlord has consulted the leaseholder in the prescribed manner or obtained dispensation from some or all of the consultation requirements from the First-tier Tribunal (Property Chamber) (the “FTT”).
Allied London (Brunswick) Ltd (the “Freeholder”) sought to carry out “qualifying works” which required consultation under section 20 of the Act. Consequently, the Freeholder consulted London Borough of Camden (the “Intermediate Leaseholder”) in accordance with the consultation requirements of section 20 of the Act. The Freeholder did not directly consult the occupational leaseholders, instead, the intermediate leaseholder sought to consult with the occupational leaseholders but not in the prescribed manner required by Act.
The Intermediate Leaseholder paid the service charges demanded by the Freeholder and in turn sought to recover the sums from the occupational leaseholders. Consequently, the occupational leaseholders issued proceedings in the FTT under section 27A of the Act, on the basis that they had not been consulted by the Freeholder or intermediate leaseholder in the prescribed manner required by section 20 of the Act and therefore their liability should be capped to £250.
In response, the Freeholder argued that it was only required to consult the Intermediate Leaseholder under section 20 of the Act. The Intermediate Leaseholder argued that there was no requirement for either the Freeholder or itself to consult the occupational leaseholders or in the alternative it was the Freeholder’s responsibility to consult the leaseholders.
The case was dealt with by the Upper Tribunal, having being transferred by the FTT because the issue was one of general public importance.
The Upper Tribunal held that the Freeholder, as the party carrying out the works, had the responsibility to consult the intermediate leaseholder and the occupational leaseholders (as those who would be ultimately responsible for paying the service charge costs). The intermediate leaseholder was held not to be under an obligation to consult the occupational leaseholders as they would not be responsible for carrying out /placing a contract for the works.
The Upper Tribunal recognised that there may be circumstances where it is impracticable for the Freeholder to be able to consult all of the intermediate leaseholders and the occupational leaseholders, particularly if the freeholder doesn’t know the details of each and every occupational leaseholder. In such a case, the freeholder should seek dispensation from the FTT before proceeding with any “qualifying works” or entering into any “qualifying long-term agreements."
This is an important decision as it places a greater burden on freeholders in such circumstances than previously. Unless dispensation from consultation is sought from the FTT, the freeholder is now required to consult with occupational leaseholders where there is an intermediate leaseholder even though there is no direct contractual relationship between the parties or risk the service charges being capped. Expect the routine use of dispensation in such matters!
For more information
For advice on Section 20 and other housing management matters please contact Penny Bournes.
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