The Government first announced plans for a shared ownership right to buy in October 2019. At the time the sector raised concerns about the impact the plans would have on housing associations ability to borrow. An election and a pandemic later the Government announced, during the CIH Housing Festival last week, the return of the right to shared ownership as part of its Affordable Homes Programme (AHP).
In the recent case of Ghosh v Hanover Gate Mansions Limited and Hanover Gate Mansions (Park Road) Limited, the Upper Tribunal (Lands Chamber) was asked when exactly an unsigned contract came into effect in a dispute concerning whether a landlord needed to undertake Section 20 consultation.
Mr Ghosh held a long lease of a flat. Hanover Gate Mansions Limited (“Hanover Gate”) was his landlord. Hanover Gate procured management services under a management contract with Faraday Property Management Limited (“Faraday”). The management contract was drafted on Faraday’s standard terms, stating Faraday would “perform the services from 12 June 2017 to 11 June 2018. After this period, the Agreement shall continue on the terms set out, subject to termination under Clause 7”.
Hanover Gate’s solicitor made minor amendments. However, the draft contract (which stated it started on 12 June 2017) was never signed or dated before Faraday commenced providing services on 12 June 2017.
Section 20 Consultation
Section 20 of the Landlord and Tenant Act 1985 (“Section 20”) provides that before a landlord enters into a QLTA for works or services, it must consult with residents paying a variable service charge following a process set out in Regulations. A QLTA is an agreement for more than 12 months, where the cost to each resident is more than £100 per accounting year. If a landlord fails to consult correctly, the amount it can recover is capped to £100 per year (unless dispensation is obtained).
Both parties agreed that if the management contract between Hanover Gate and Faraday started on 12 June 2017, it was a QLTA: this is because the earliest it could terminate was 12 June 2018. The issue was when it started.
Mr Ghosh argued it commenced on 12 June 2017 and was, therefore, a QLTA. Since the landlord did not consult him about the management contract in accordance with Section 20, Mr Ghosh argued his service charge contribution should be capped at £100.
Hanover Gate argued 12 June 2017 was just a periodic trial basis, and there was no formal contract, so no QLTA, meaning the full amount could be recovered.
In the first instance, the First-tier Tribunal agreed with the landlord that the management contract was not a QLTA, as it did not commence until Hanover Gate made payment to Faraday at a later date after 12 June 2017.
The Upper Tribunal overturned the original decision. It held there is no general rule on contract formation that performance of a contract only takes place when goods or services are paid for. Applying authority from the 19th century, the Upper Tribunal preferred Mr Ghosh’s argument that the management contract took effect by performance when management services commenced on 12 June 2017. Therefore, it was held the contract was a QLTA, and as Section 20 consultation was not carried out, Mr Ghosh’s contribution was capped to £100 per year.
The case provides a useful reminder to be cautious and check whether agreements your organisation is entering into meet the QLTA definition and trigger Section 20 consultation. Although not substantial in this case (recovery was capped at £100 instead of the £218.73 claimed by Hanover Gate), failure to consult properly can have significant financial consequences for landlords.
The ruling in Ghosh was based on established principles of contract formation and has wider implications beyond the context of Section 20 consultation. In the language of Ghosh, it is not unimaginable that some contracts may be negotiated but left in a desk drawer, during which time goods or services may be exchanged on uncertain terms, leading to a potential dispute. In our view, Ghosh serves an important lesson to landlords for seeking clear legal guidance and following best practice when drafting and completing agreements.
For more information
For more information about this case and service charges generally, please contact Emma Hardman.
Two final pieces of the possession jigsaw have been published on 15 September 2020. Mr Justice Knowles’ working group on possession proceedings has issued its guidance on the “overall arrangements” for possession proceedings.
One change proposed by the Building Safety Bill is the introduction of a duty holder regime, which will see statutory responsibility for the safety of higher risk buildings placed on key individuals
Throughout this pandemic, the Competition and Markets Authority (CMA) has been publishing various “Statements on Coronavirus” (Statements) which provide guidance on consumer rights during this time.
A recent increase in COVID-19 cases in the UK means new measures are being put in place in an effort to reduce the risk of a second wave. Whilst the impact of COVID-19 continues to be felt, it is important to remain focused on the sector’s road to recovery.
Sometimes half an hour at a conference gives you the reality that has been staring you in the face all along. That was my experience watching “Change is on the Horizon”
Following our recent e-briefing on Possession Notices, Helen Tucker and Emilie Pownall from our housing litigation team discuss the impact of the changes on social landlords.
Not only has the possession stay been extended until 20 September, the notice periods to be given to tenants has been extended in certain circumstances with some important exceptions.
The Court has confirmed that a party cannot withhold its consent in order to re-write the original bargain.
Following the Grenfell Tower tragedy, building safety continues to be a key concern for social housing providers and their residents.
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