Landlords will be relieved to hear that the statutory service charge consultation requirement only applies if a service charge of over £250 per leaseholder is payable in respect of separate projects or sets of qualifying works. Laura Bushaway and Zoe Athill look at the recent Court of Appeal decision in Francis v. Phillips.
Landlords of long residential leases are required to consult leaseholders in respect of works to a building or other premises (or obtain dispensation from the consultation requirements) in order to recover service charges from a leaseholder in excess of £250.
In 2012, the High Court decided that this consultation requirement applied to the totality of such works undertaken in one service charge year. The Court of Appeal has now confirmed that the consultation requirement applies to individual ‘sets’ of qualifying works rather than the total works in a given year.
The High Court decision has, over the last 18 months, caused much concern for landlords of long residential leases and their managing agents, having turned on its head the previously accepted practice in respect of Section 20 service charge consultation.
The effect of that decision was that all qualifying works undertaken in any one service charge year were to be added together and, if any one leaseholder was required to pay more than £250 in that service charge year, the landlord’s obligation to consult (or obtain dispensation) would be triggered once that
£250 limit had been exceeded. The decision gave rise to serious practical problems for landlords who were required to consult far more frequently, which was both time consuming and costly. Once the £250 limit was exceeded for that service charge year, landlords were required to consult on any works, no matter how minimal.
The Court of Appeal in Francis v. Phillips  EWCA Civ 1395 has overturned this much criticised decision and restored the traditional approach that the £250 service charge threshold for qualifying works applies to individual sets of works.
This will be of relief to landlords in removing the additional administrative burden in having to consult where works in any one service charge year cumulatively exceeded £250.
Leaseholders will also welcome the decision as their liability to contribute towards the landlord’s costs of consultation under their leases is likely to dramatically reduce. In fact, the Court of Appeal in reaching its decision highlighted the unfair burden to Tenants of additional consultation costs.
Following the decision in Francis v. Phillips, whether there are one or more sets of qualifying works will be a question of fact in each case. A common sense approach is to be adopted in making this assessment. The following factors may be relevant to determining that question but are not an exhaustive list:-
- Where the items of work are to be carried out;
- Whether they are the subject of the same contract;
- Whether they are to be done at more or less the same time or at different times; and
- Whether the items of work have any connection with each other.
As a result of Francis v. Phillips, statutory service charge consultation is back on track, which should ease the administrative burden and save valuable time and money for both landlords and leaseholders.