Certainty Regained over Section 20 Consultations

After a long wait, the judgment of Court of Appeal has partly overturned the controversial 2012 High Court decision in Phillips & Goddard v Francis.

The Court of Appeal has clarified the law in relation to section 20 service charge consultations required under Part 2 to Schedule 4 of the Service Charges (Consultation) (England) Regulations 2003 ("the Regulations").

Background to Phillips & Goddard v Francis [2014]

In the current case, the tenants challenged their service charge liability with respect to works carried out over two years. The tenants proposed that the works had been designed as a single set and accordingly there should have been consultation, failing which the tenants' individual liabilities for the service charges were capped at £250 as per Regulation 6 of section 20(1) of the Act.

The Court of Appeal held that the individual improvement works were done on different parts of the premises and by different contractors at different periods and could not be considered as one project. Since none of the individual works were above the limit, no consultation was required.

In doing so the court of Appeal has dismissed the ‘aggregating’ approach used by the High Court whereby the £250 limit before consultation on ‘qualifying works’ would be calculated by summing up the cost of all works in a given year without division into separate sets of qualifying works.

Reasoning Behind the Decision in Phillips & Goddard v Francis [2014]

This decision means a reversion back to the ‘individual sets’ approach which was originally thought to be the law because of the fact that an aggregated approach was unfeasible. Fixture works by their very nature can be unforeseeable and going through the process of consultation would be time consuming and hence, detrimental to the leaseholders themselves. Solving emergencies would become a next to impossible task.

Furthermore, consultation on every single work, however small, carried out post crossing the £250 limit would increase administrative costs exponentially for landlords, who should not be constrained while doing their duties because of not having planned more than a year beforehand.

The Court of Appeal noted that adopting the ‘sets approach’ would not give an unfair advantage to landlords because leaseholders are already protected by section 19 of the 1985 Act, whereby ‘the costs are only relevant costs to the extent that they are reasonably incurred and of a reasonable standard.’ The section prevents landlords from artificially presenting a project as individual sets simply in order to avoid the process and scrutiny of consultation.

Lastly, the Court of Appeals decided that if the Parliament had intended for the limit to be calculated on a yearly aggregate it would have been specifically mentioned. In no sense does the wording of the statute refer to any time period.

Comment

This decision should be welcomed by landlords, managing agents and leaseholders. Landlords have regained a degree of certainty about when it is or is not to serve notices under section 20 and carry out consultations. Managing agents should also find it easier to advise their clients with a degree of certainty and to carry out minor repairs without concern over the need for consultations. Leaseholders should see minor and emergency works carried out without unnecessary delays.

For specialist advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.