The High Court has ruled that retrospective changes to the LGPS exit credits regime were lawful – and gave some helpful guidance around the new discretion to pay an exit credit.
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.
The Government has brought forward draft laws to allow independent schools to close the Teacher’s Pension Scheme to new joiners but to allow existing members to continue.
The Government has started consultation on the regulations providing the detailed framework for collective money purchase pension schemes.
In June we took on the challenge to become a Sepsis Savvy organisation - I'm really pleased to announce we've done it!
In 2020 the court rules were changed to require that all residential tenants must be given 14 days’ notice of an eviction. What happens though if the eviction is cancelled on the day?
We are delighted to announce that our private wealth law department has continued to maintain its Band 2 position in the latest edition of Chambers and Partners High Net Worth.
The new CHF is set to launch and open for applications with £4 million set to be allocated to community-led housing groups to support an increase the supply of affordable housing in England.
Charities, like other organisations, may be subject to or choose to voluntarily comply with the reporting requirements under the Modern Slavery Act 2015.
The draft regulations making it mandatory for anyone entering a registered care home in England to have been double vaccinated unless they are clinically exempt were made on 22 July 2021.
Doug Mullen and Michelle Knight discuss the recent judicial review of regulations changing the regime governing exit credits in the local government pension scheme.
To receive invitations to our events, as well as information and articles on legal issues and sector developments that are of interest to you, please sign up to Newsroom.