Local Authorities have a history of falling foul of the complex statutory consultation requirements relating to major works paid for by lessees through their service charges. The Service Charges (Consultation) (England) Regulations 2003 provide that if a landlord proposes to carry out works that would cost individual tenants more than £250, the landlord must formally consult all of those expected to contribute. If a landlord fails to consult, or is not given dispensation from the Leasehold Valuation Tribunal, he will be unable to recover more than the statutory limit of £250 from each tenant. Similar provisions apply where the landlord intends to enter into a long term qualifying agreement for the provision of services, save that the costs cap in such cases is £100. The consequences of failure to comply with the Regulations can be dramatic.
In Camden LBC -v- The Leaseholders of 37 Flats at 30-40 Grafton Way (2008) – The Council claimed £504,000 by way of service charges from the leaseholders but the Leasehold Valuation Tribunal held that it could recover only £9,250, being £250 per flat. Camden had failed to provide details of the estimates obtained for the works and allow tenants to make observations. The Lands Tribunal agreed this was a gross error which had fundamentally prejudiced the tenants and that dispensation should not be given. Accordingly it refused Camden’s appeal.
In the recent case of Newham LBC -v- Mr Hannan, Mrs Nessa and Others (28 September 2011) the Council secured a notable victory. Due to the value of the contract which involved works costing several million pounds to a number of tower blocks, the Council had to comply not only with the 2003 Regulations but also the rules on public procurement of contracts. Although the Council completed the four stage consultation process it carried out the first two stages in the wrong order. It published notice of the works in the Official Journal of the European Union (advertising the contract to potential contractors) before rather than after notifying the service charge paying leaseholders that it intended to carry out the works. The Council sought dispensation from the Leasehold Valuation Tribunal but this was refused.
On appeal the Upper Tribunal confirmed that an important consideration in determining whether dispensation should be given was the degree of prejudice caused by the breach: what opportunity the tenant has lost, and has its loss caused the tenant significant prejudice. The Upper Tribunal bore firmly in mind that this case was quite different from a tenant’s usual right to nominate a contractor. Where the Public Procurement Regulations applied the tenant had no such right, only the ability to identify and then encourage a Public Procurement-compliant contractor to respond to an advertisement which, in reality, a tenant will rarely if ever utilise. On the question as to what opportunity did the tenants lose by the Official Journal advertisement predating the notice of intention the Upper Tribunal held “nothing”. Not one tenant had raised any question relating to the Official Journal advertisement or at any time made any observation or expressed a desire to be involved in the selection of the contractor. The Upper Tribunal concluded that while the breach was not a mere technicality the opportunity afforded to the tenants was very narrow in scope and as a matter of fact caused no prejudice. The Upper Tribunal therefore allowed the appeal and granted dispensation, no doubt to the relief of the Local Authority and, by extension, its Council Tax payers.