Paying for the Repairs – Sanity Prevails

Francis v Phillips [2014] EWCA Civ 1395

S 20 Landlord & Tenant Act 1985 provides a consultation procedure that landlords of residential properties let on long leases must follow before carrying out building works on the premises or they risk having the cost recoverable in the form of service charges capped at £250 per tenant. Unless the FTT (formerly the LVT) grants a dispensation. There are a number of other features as you might expect, and I have set out Noddy’s Guide to this in my piece on this case when it came up to the High Court in early 2013.

The short facts for today are that the case was set in a holiday site at St Merryn, Cornwall, which had been let out as more than 150 chalets, plus some other properties, all on long leases. The landlord had been carrying out a long and pretty expensive series of piecemeal improvements and repairs, without any consultation at all. However, as the £250 a head limit netted over £40,000, and as each of the projects came out at somewhat less than this, he argued that he didn’t need to, and the County Court Judge agreed, following the 1999 CA case of Martin v Maryland Estates, and  saying that

a commonsense approach to construction needs to be taken,and in view of the fact that it acts as a trigger for the protection afforded by consultation. If the threshold were too low and all minor or non permanent works covered, the result would be commercially unmanageable, to the detriment of both lessor and lessee.

Unfortunately the Chancellor Sir Andrew Morritt, in one of his last judgments before retiring, disagreed. He disagreed with Martin, said that a subsequent minor change in the legislation meant that he could distinguish it, and ruled that you shouldn’t divide the works up into separate projects and only consult if any one project exceeded the limit. You had to add up all the building works (and this includes “all works on a building or any other premises” – so it includes painting,  and the like) and if over the accounting year they come out at more than £250 a head the obligation kicks in. Even if some of the work is unexpected or very minor.

There was utter horror and disbelief among landlords of these properties at the sheer impracticability of this, tempered only by the fact that the Supreme Court decided shortly afterwards in the case of Daejan Investments v Benson that the FTT can grant dispensations before or after the event, and ought normally to do so unless the tenants can show that they have been badly prejudiced by the failure to consult beforehand. And even then the landlord may get permission if they compensate the tenants for any additional cost involved. I’ve covered this in my earlier piece too (here).

 The Court of Appeal

Fortunately the landlord appealed to the CA and came up before a strong court made up of the Master of the Rolls, Kitchin LJ and the new Chancellor, Sir Thomas Etherton. They vigorously supported the projects or “sets” approach adopted by the CCJ as against the “aggregation” approach of the Chancellor and pointed out that:

  • the changes in the legislation were very minor, and Martin still applied;
  • aggregation was not a sensible or practical approach, and cannot have been what parliament intended;

26…..Imagine a residential block of flats with 4 tenants: the annual regulatory limit is 4 x £250: £1000. Three lots of minor works on a building each costing £75 are carried out in the first half of the year. The landlord has spent £225 on service charge items. There has been no consultation. Unexpectedly, in September the outer door of the block breaks and a new door frame is required which would cost £800. A storm in November causes window damage that would cost £400 to repair. On the sets approach, the landlord would not need to consult on any of these items. They are all distinct sets of qualifying works none of which costs more than £1000. The landlord could respond immediately and repair the damage to the door and the window. The tenants are still protected because they have the after-the-event protection afforded by section 19 of the 1985 Act that the costs are only relevant costs to the extent that they are reasonably incurred and of a reasonable standard.

27. On the aggregating approach, the annual limit is exceeded by the broken door. The landlord is obliged to consult on it. This process takes time and costs money. If instead he replaces the door immediately, he has no right to recover the full amount without dispensation. Seeking dispensation has attendant legal and administrative costs as well as the risk of non-recovery and delay. But if he does not replace the door, the flats are unsafe and he is likely to have irate tenants.

And they pointed out that the real protection for tenants brought by the 1985 Act is that all service charges have to be reasonably incurred and of a reasonable amount, and if not can be disallowed by the FTT.

And the moral?

Possibly beware of judges who are retiring, as they may be thinking more about the law than the practical results of their judgments.

Anyway, we are now back to the situation as we all believed it was before this little explosion:

  • consult on projects which will cost more than £250 a head
  • there is no need to do so on smaller ones
  • if a project is too urgent to consult on then the FTT  may dispense with the need beforehand
  • or indeed afterwards, which may be a way out if a project ends up costing more than £250 a head when it wasn’t expected to do so (after Daejan)

But remember that the costs have to be reasonable if the landlord is going to defeat a challenge in the FTT.