Landlords who provide services to their residential tenants are under an obligation to consult with their tenants before carrying out qualifying works if any individual tenant would be required to contribute more than £250 towards the costs of those works. Qualifying works are, broadly, any works to the building, including maintenance, repairs and decoration. The relevant provisions are set out in sections 18 to 30 Landlord and Tenant Act 1985.
A failure to follow the consultation requirements is costly; landlords cannot recover more than £250 from each tenant if they do not consult. The Leasehold Valuation Tribunal applies this rule very strictly.
The recent case of Phillips v Francis  EWHC 3650 (Ch) has created additional problems for landlords when they have to consider whether or not consultation is required.
The case involved the provision of services to a holiday park. The owners had planned a series of works and improvements to upgrade the facilities and sought to recover the costs through the service charge payable by the chalet owners. Taken individually, each element of the works would not have triggered the consultation requirements. However, taken in aggregate they did. The judge held that the owners were bound by the consultation requirements in respect of a series of works where, in aggregate, any tenant would have to contribute more than £250 towards the costs of those works taken as a whole. The judge justified his decision on the basis that changes in the Landlord and Tenant Act 1985 over the years have moved the emphasis from the costs of individual works to the overall contribution that the tenants have to make towards the costs of the works.
What does this mean in practice for landlords? At its simplest, where a property owner is budgeting for the provision of works to a building, it needs to look at the aggregate cost of the qualifying works and consult with the residential tenants if any tenant would be required to contribute more than £250 to the total costs of the works. It will be more difficult for landlords to argue that discrete and unrelated works be treated separately for the purposes of the consultation requirements where it is known in advance that they are going to be carried out. All the qualifying works have to be taken into account.
What is more problematic is how this applies where the costs of works arise on a sporadic basis. The judge commented that this approach “… conforms more closely to the ongoing works of repair and maintenance likely to be necessary on an estate in multiple occupation. They are unlikely to be identified as parts of a complete set of works which can be costed at the outset. In the normal way they will be carried out as and when required. The need for some limitation on an obligation to contribute is at least as necessary with sporadic works of that nature as with a redevelopment plan conceived and carried out as a whole.” (emphasis added)
We do not know how the Leasehold Valuation Tribunal will apply this principle. In theory it could mean that landlords will need to keep an ongoing watch on the level of costs that are being incurred that will be passed on to individual tenants. For example, a property owner has budgeted for qualifying works that will cost an individual tenant £220. This is below the consultation threshold and those costs have been incurred. However, in the course of carrying out the works, dry rot is discovered and to remove it will cost the tenants a further £50 each. At this point the £250 threshold is exceeded. Is the property owner now under an obligation to consult in respect of the dry rot works? If it does not do so, is it simply the costs of those works that cannot be recovered or will the failure to consult mean than recovery of the costs of all of the works, whether budgeted or unexpected, is prejudiced? Part of the problem with the decision in the Phillips case arises because the judge appeared to approach the £250 threshold as an annual limit (which is not what the Landlord and Tenant Act 1985 says) and measured the costs of all of the qualifying works on this basis.
As a result of this uncertainty, landlords and their managing agents are more likely to need to consult to safeguard the right to recover the costs of works. As the consultation process is lengthy (unless works are urgent), this seems a recipe for frustrating the proper and efficient management of residential property. We must hope that the Court of Appeal looks soon at this aspect of the consultation requirements.