From 31 October 2014, landlords and managing agents can finally rest more easily now that the Court of Appeal has applied some good old-fashioned common sense and overturned the original decision by the Chancellor in Phillips & Goddard v Francis.
In making its decision, the Court of Appeal held that the Chancellor was wrong in his approach that a landlord’s statutory obligations under section 20 of the Landlord and Tenant Act 1985 (as amended) meant that a landlord must consult his tenants if all the total proposed works (without dividing the works into separate categories) in any service charge year would cost any individual leaseholder more than £250 per year.
Brief case recap
The landlord carried out substantial works to a holiday park but did not consult with the leaseholders as it argued that, as there were a series of works of which none cost any of the individual leaseholders more than £250, there was no obligation to do so. The landlord was initially successful with this line of argument.
In simple terms, the leaseholders argued that the works were one set of qualifying works and, as the landlord had failed to consult them, the leaseholders were only required to pay £250 per premises. While the leaseholders were ultimately successful on appeal, the Chancellor took a contrary view and held that, if any leaseholder is required to pay more than £250 in any one service charge year, then the landlord must consult with the leaseholders.
The decision caused huge controversy. How exactly were landlords and their agents meant to comply with this bizarre interpretation of the law? For example, it did not take into any account the difficulties which a landlord might face if unforeseeable, emergency works were required at any point during the service charge year which might increase the cost for qualifying works over the £250 threshold.
Fortunately, the Court of Appeal overturned the Chancellor’s decision and held that a landlord’s statutory obligation to consult their tenants is limited to where they propose to carry out “sets” of qualifying works. The court gave some guidance on identifying a single set of qualifying works such as whether the works are part of the same contract, whether the works are different from each other, where the items of work are to be carried out and whether the works are to be carried out at a similar time.
Landlords can now move forward with certainty when planning qualifying works.