07 July, 2020
We regularly advise Registered Providers of Social Housing on their duties to consult with leaseholders under Section 20 of the Landlord and Tenant Act 1985 when planning to do qualifying works or enter into a qualifying long term agreements. On occasion, if it is not possible to fully comply with the Regulations, it can be necessary to seek dispensation from the First-Tier Tribunal (FTT) in order to recover costs through the service charge to lessees.
In Aster Communities v Kerry Chapman & Ors , the landlord was seeking to recover the cost of repair and maintenance works on flats let on long leases. It carried out various works and in 2017, sought to recover the costs from the lessees through the service charge. The landlord applied to the FTT for determination of the service charge under section 27A of the Landlord and Tenant Act 1985. The FTT held that the replacement of asphalt on balconies, which was just one part of the works, had been unnecessary and the cost could not be recovered through service charge. Moreover, the asphalt works had not been part of the section 20 consultation process.
Aster Communities then applied for dispensation from the consultation requirements so it could try again to include the cost of asphalt works in the service charge. The lessees objected and argued the lack of consultation had deprived them of the opportunity to seek expert advice on the proposed works. The Tribunal applied the principles in Daejan Investments Ltd v Benson  UKSC 14 and found that the lessees had made a credible case that they had been prejudiced by lack of consultation, however dispensation was granted on condition that the landlord paid the lessees' reasonable costs of the dispensation application and of obtaining an expert report on the asphalt replacement.
In Daejan, the Supreme Court held that the legal test for dispensation is:
"Would the flat owners suffer any relevant prejudice, and if so, what relevant prejudice, as a result of the landlord's failure to comply with the requirements?"
The Tribunal has the power to grant dispensation on appropriate terms and can impose conditions. Where relevant prejudice has been established, the Supreme Court held in Daejan that the Tribunal should in the absence of some good reason otherwise, require the landlord to reduce the amount of service charges claimed to compensate the leaseholders fully for that prejudice. The Tribunal is essentially seeking to reconstruct what would have happened had the consultation been followed properly.
Lessees have the burden of establishing prejudice and, if established, a Tribunal is more likely to make conditional dispensation. In attempting to establish prejudice, lessees often complain that the failure to consult deprives them the opportunity to make representations about the proposed works. However, the mere loss of such an opportunity has been held to not of itself establish prejudice; lessees would normally have to indicate what they would have said had they been consulted.
In Aster Communities, the Tribunal found it was unrealistic to require the lessees to instruct an expert to comment on the necessity of the asphalt replacement as a precursor to the dispensation application. The FTT had already found in the section 27A proceedings that asphalt replacement was not needed so there was already a credible case of prejudice. Allowing the lessees to obtain an expert report now would put them in the position they would have been in had consultation been carried out. The landlord had not produced evidence to rebut that. Therefore, the FTT granted dispensation but on condition that the landlord pay the lessee's reasonable costs. Daejan expressly contemplated conditions requiring a landlord to recompense lessees for incurring surveyors' fees and it did not qualify the circumstances in which such conditions could be imposed.
The landlord appealed to the Upper Tribunal on the FTT's decision to impose conditions on its dispensation. The UT dismissed the appeal.
This case highlights the importance of getting section 20 consultation right and the cost consequences that can arise should the process not be followed.
For more information contact Emily Jordan in our Housing & Regeneration department via email or phone on 01257 240850. Alternatively send any question through to Forbes Solicitors via our online Contact Form.